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UNIVERSITY  OF   ILLINOIS  STUDIES 

IN  THE 
I  SOCIAL  SCIENCES 

Vol.  X  JUNE,  1922  No.  2 


BOARD  OF  EDITORS  : 

ERNEST  L.  BOGART  JOHN  A.  FAIRLIE 

LAURENCE  M.  LARSON 


PUBLISHED  BY  THE  UNIVERSITY  OF  ILLINOIS 

UNDER  THE  AUSPICES  OF  THE  GRADUATE  SCHOOL 

URBANA,  ILLINOIS 


COPYRIGHT,  1923 
BY  THE  UNIVERSITY  OF  ILLINOIS 


OPEN   PRICE  ASSOCIATIONS 


BY 

MILTON  NELS  NELSON 

Instructor  in  Economics 
University  of  Illinois 


PUBLISHED  BY  THE  UNIVERSITY  OF  ILLINOIS 
URBANA 


TABLE  OF  CONTENTS 

AFTER  PAGE 

I.  Terminology,  Definition,  Prevalence,  Purposes,  and  His- 

toric Origin 9 

Character  of  terms  in  use  to  designate  open  price  activity 9 

Open  price  associations  and  ordinary  trade  associations  compared 10 

Prevalence  in  the  various  industries 10 

Distribution  among  manufacturers,  wholesalers,  and  retailers 18 

Objects  of  Eddy  and  other  associations 19 

Historic  origin 24 

Recent  developments 28 

II.  Description  of  the  Combination  and  Association  Develop- 

ment in  the  Iron  and  Steel  Industry  and  Comparison  with 

the  Open  Price  Association 29 

Reporting  system  of  combinations  and  open  price  associations  com- 
pared   29 

Objects  of  combinations  and  open  price  associations  compared 31 

Resemblances  between  statistical  associations  and  open  price  associa- 
tions   32 

Statistical  associations  succeeded  by  the  Gary  dinner  system 33 

The  Gary  dinner  system  succeeded  by  the  open  price  system 39 

III.  The  Eddy  Theory  and  Plan  of  New  Competition 41 

Theory  in  support  of  the  open  price  plan 41 

,      Eddy's  arraignment  of  present  competitive  conditions 41 

Eddy's  exposition  of  "true  competition" 44 

Criticism  of  the  Eddy  statement  of  theory ,. 44 

Knowledge,  the  essence  of  competition 45 

Competitive  conditions  on  the  Exchanges 45 

Vindication  of  competition  as  conceived  by  the  economist 46 

The  worth  of  Eddy's  work  estimated 47 

Criticism  of  the  Eddy  open  price  plan 47 

IV.  Structural  Features  of  the  Open  Price  Association 50 

Voluntary  and  incorporated  types  compared 50 

Membership 54 

Officers 58 

The  Central  Office .'. „ 62 

Meetings 63 

V.  The  Reporting  Plan „ 68 

Reporting  among  manufacturers  who  make  goods  to  specification 68 

The  Eddy  Plan 68 

Deviations  from  the  Eddy  Plan ; 69 

Method  of  reporting  among  typical  Eddy  associations 70 

Deviations  from  methods  in  use  by  Eddy  associations 71 

Reporting  among  manufacturers  who  sell  to  jobbers  and  retailers 72 

Standardization , 72 

Differences  in  the  amount  of  information  interchanged 74 

Filing  of  price  lists 75 

Filing  reports  of  actual  sales  transactions 77 

Trade  statistics,  costs,  etc 80 

VI.  The  Advantages  and  Disadvantages  Connected  with  Open 
Price  Work 90 

Development  of  the  spirit  of  cooperation 90 

Relative  benefits  to  the  small  and  large  manufacturer 93 

Preventing  purchasers  from  overreaching  manufacturers 95 

Benefits  to  the  Government 98 


Uses  made  of  statistics , 99 

Handicaps  to  the  installation  of  an  open  price  system 104 

Negligence  in  the  performance  of  obligations 109 

Deficiencies  in  the  reporting  system 112 

Probable  success  or  failure  of  open  price  work 115 

VII.  Open  Price  Activity  in  the  Lumber  Industry , 116 

Prevalence 116 

Comparison  with  the  Eddy  type  of  open  price  activity 117 

The  Yellow  Pine  Association 119 

The  American  Hardwood  Manufacturers'  Association 124 

Public  and  economic  aspects  of  open  price  activity 134 

VIII.  Regulatory  Aspects  of  Open  Price  Activity 142 

Importance  of  the  case  of  the  United  States  vs.  American  Column  and 

Lumber  Co.  et  al 142 

Decisions  applicable  to  the  open  price  system .'. 145 

Expositions  of  the  law  relating  to  the  open  price  plan 149 

Illegal  activities  and  suggested  remedies 158 

Attitude  of  the  Federal  Government _ 169 

IX.  Some  Considerations  Involved  in  a  Study  of  the  Influ- 
ence of  Open  Price  Activity  on  Prices 174 

Difficulty  of  ascertaining  effect  on  prices 174 

Method  of  ascertaining  influence  on  prices 175 

The  need  of  exercising  care  in  choosing  data  for  study 182 

Influences  at  work 183 

X.  Open  Price  Associations  and  the  Public  Welfare 196 

The  open  price  plan  in  its  relation  to  competition 196 

Benefits  to  the  sellers  and  buyers  compared 197 

Conditions  under  which  open  price  work  may  jeopardize  the  public 

interest 199 

Inadvisability  of  abandoning  open  price  work 200 

Establishment  of  an  open  price  bureau  by  the  Federal  Government 202 

Illustrative  charts: 

1.  Comparison  of  prices  received  by  members  of  American  Hardwood 
Manufacturers'  Association  with  those  received  by  a  non-member....  178 

2.  Comparison  of  prices  received  by  members  of  American  Hardwood 
Manufacturers'    Association 179 

3.  Compilation  of  prices  received  by  members  of  American  Hardwood 
Manufacturers'  Association  disclosing  the  wide  variation  of  prices 
received 181 

Appendix,  Exhibits  1-14: 

1.  List  of  associations  reputed  to  be  doing  open  price  work 207 

2.  Minutes  of  Meeting,  American  Hardwood  Manufacturers'  Associa- 
tion   211 

3:  Constitution  and  By-Laws  of  a  typical  open  price  association 214 

Reporting  forms: 

4.  Society   of   Manufacturing   Confectioners 220 

5.  North  Carolina  Pine  Association 221 

6.  American  Hardwood  Manufacturers'  Association 222 

7.  West  Coast  Lumbermen's  Association 223 

8.  North  Carolina  Pine  Association 224 

9.  Society  of  Manufacturing  Confectioners 1 225 

10.  American  Hardwood  Manufacturers'  Association 226 

U-I2.  National  Association  of  Box  Manufacturers , 227-228 

13-14.  North  Carolina  Pine  Association 229-230 

Bibliography 231 


PREFACE 

The  dissertation  which  follows  must  be  looked  upon  as  an 
introductory  study  of  the  open-price  movement  rather  than  an 
exhaustive  one.  The  movement  being  of  comparatively  recent 
origin,  the  accumulated  data,  based  on  observation  and  experi- 
ence, are  necessarily  inconclusive  on  many  points.  In  conse- 
quence it  has  been  found  necessary  in  many  instances  to  base 
conclusions  mainly  on  theoretical  considerations.  There  remains 
for  future  investigators  the  obvious  task  of  testing  out  these 
conclusions  in  the  light  of  a  more  adequate  fund  of  data.  , 

The  writer  desires  to  express  his  obligation  to  officers  of  open 
price  associations,  too  numerous  to  mention  by  name,  for  their 
cooperation  in  furnishing  data.  Special  acknowledgments  are 
due  to  Professor  Maurice  H.  Robinson  of  the  University  of 
Illinois,  who  suggested  the  topic  and  under  whose  supervision 
the  work  has  been  brought  to  completion.  Appreciation  is  also 
expressed  to  members  of  the  Economics  Seminar  (1920-1921)  of 
the  University  of  Illinois  for  permission  to  read  and  offer  for 
their  criticism  certain  chapters  of  the  dissertation. 

UNIVERSITY  OF  ILLINOIS. 


CHAPTER   I 

TERMINOLOGY,  DEFINITION,  PREVALENCE, 
PURPOSES,  AND  HISTORIC  ORIGIN 

TERMINOLOGY 

It  is  not  easy  to  identify  an  open  price  association  by  its 
name.  They  are  most  commonly  designated  as  "associations" 
or  "bureaus"  or  "institutes"  or  "societies"  or  "exchanges".1 

The  terms  most  commonly  used  to  designate  the  kind  of 
activity  engaged  in  by  open  price  associations  are  "New  Com- 
petition", "Open  Door  Competition",  "Open  Price  Cooperation", 
and  "Cooperative  Competition".  Perhaps  the  last  named  term 
is  the  most  expressive  because  it  invites  attention  to  the  fact 
that  members  of  an  open  price  association  aim  to  cooperate  in 
such  a  manner  that  competition  between  themselves  will  not  be 
impaired.  The  use  of  such  a  term  as  "Open  Price  Cooperation" 
is  open  to  the  objection  that  it  lays  undue  stress  on  the  price 
feature  of  the  open  price  plan.  Many  supporters  of  the  plan 
take  the  ground  that  this  activity  occupies  a  position  of  lesser 
importance  than  other  activities  involved  in  the  operation  of  the 
plan.  That  there  is  some  weight  to  this  assertion  will  be  shown 
in  another  connection.2  Of  course  the  same  criticism  applies  to 
the  use  of  the  term  "Open  Price  Association".  However,  it  has 
merit  in  that  it  calls  attention  to  an  activity  that  is  peculiar  to 
this  type  of  association  as  distinct  from  that  of  the  ordinary 
trade  association,  namely,  price  reporting. 

DEFINITION 

The  open  price  association  is  an  organization  which  provides 
a  medium  for  the  exchange  of  business  information  among  mem- 
bers of  a  given  industry  whereby  they  may  arrive  at  an  intimate 

illustrations:  American  Hardwood  Manufacturers'  Association;  Lumber- 
mens'  Statistical  Bureau  {National  Bar  Iron  Institute;  Manganese  Steel  Founders' 
Society;  Steel  Locker  and  Shelving  Manufacturers'  Exchange. 

JC/.  ch.  5,  p.  80. 


IO  OPEN  PRICE  ASSOCIATIONS  [174 

acquaintance  with  competitive  conditions  as  they  exist  among 
themselves  and  in  the  whole  industry.  The  business  facts  most 
commonly  exchanged  are  those  relating  to  prices  actually  quoted 
or  charged,  terms  of  payment,  manufacturing  and  selling  costs, 
purchases,  stocks,  production,  orders,  shipments,  inquiries,  bids, 
contracts,  returned  goods,  cancellations,  advertising,  and  credits. 

There  are  discernible  several  points  of  difference  between  an 
open  price  association  and  the  ordinary  trade  association.  The 
ordinary  trade  association  is  very  loosely  organized  and  serves 
only  certain  general  purposes.  There  is  little  or  no  attempt  to 
systematically  assemble,  compile,  and  disseminate  complete  and 
accurate  business  statistics.  Meetings  are  infrequent;  members 
do  not  come  much  in  personal  contact  at  these  meetings  because 
the  membership  is  usually  large.  Divergence  of  interests  is  more 
or  less  great,  making  it  difficult  to  secure  harmony  of  action.  It 
is  often  found  that  the  members  of  such  an  association  do  ex- 
change price  information.  In  so  far  as  this  is  done,  the 
association  may  be  considered  a  kind  of  open  price  association, 
but  it  is  not  a  typical  one. 

The  typical  open  price  association  is  a  small,  closely  knit 
organization.  Its  members  place  heavy  emphasis  on  the  impor- 
tance of  assembling,  compiling,  and  disseminating  among  them- 
selves complete  and  accurate  statistics.  These  statistics  serve 
the  purpose  of  putting  each  member  in  possession  of  business 
facts  which  will  provide  him  with  a  basis  for  the  intelligent 
direction  and  control  of  his  business.  If  anything,  even  more 
emphasis  is  put  upon  the  importance  of  securing  frequent  per- 
sonal contact  between  members.  This  is  accomplished  by  having 
frequent  meetings.  Where  membership  is  relatively  large,  or 
where  it  is  spread  over  a  wide  area  of  territory,  it  is  customary 
to  have  group  meetings.  In  these  meetings  members  freely 
discuss  all  matters  of  interest  bearing  on  the  problems  of  their 
industry,  including  prices  that  have  been  received  in  past  trans- 
actions. Discussions  relating  to  future  prices  are  not  permitted. 

PREVALENCE 

The  open  price  association  is  an  American  institution.3  How 
many  of  these  associations  exist  in  the  United  States  is  very 

*Eddy,  Arthur  J.,  Address,  American  Lumberman,  Dec.  20,  1913. 


175]  DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN  II 

difficult  to  determine.  One  estimate  places  the  number  at  250.* 
A  prominent  counsel  for  several  open  price  associations,  whose 
opinion  bears  weight,  states,  "It  is  probably  true  that  no  great 
industry  in  this  country  is  entirely  without  some  form  of  coop- 
eration that  meets  at  some  point  some  principle  of  the  so-called 
open  price  work.  I  have  no  doubt  at  all  that  there  are  as  many 
as  three  hundred  and  possibly  three  times  three  hundred."5  The 
writer  is  informed  by  one  of  the  representatives  of  a  prominent 
bureau  doing  open  price  work  that  the  bureau  in  question  has 
collected  a  list  of  four  hundred  and  twenty-nine  open  price  asso- 
ciations, and  the  opinion  was  expressed  that  there  are  in  existence 
some  four  hundred  and  fifty  of  these  associations.6  However  the 
informant  did  not  know  what  percentage  of  this  number  repre- 
sented associations  which  had  adopted  the  open  price  plan  in  its 
entirety.  Probably  the  number  falling  in  the  latter  class  would 
be  considerably  less. 

There  is  no  doubt  that  the  late  war  gave  an  impetus  to  the 
spread  of  this  association  movement.  In  supplying  its  needs,  the 
Government  made  a  practise  of  dealing  with  associations  of 
manufacturers  rather  than  with  individuals.  Many  associations 
that  were  hastily  thrown  together  for  war  purposes  were  kept 
up  after  the  advent  of  peace.7  Requests  made  by  the  Govern- 
ment for  statistical  data  relating  to  such  matters  as  stocks  of 
goods  on  hand  in  any  given  industry,  productive  capacity  of 
individual  manufacturers,  et  cetera,  provided  associations  with 
a  strong  incentive  for  gathering  and  compiling  statistics  relating 
to  their  industry.8  Many  associations,  organized  to  do  open  price 
work,  sprang  up.  Ordinary  trade  associations  added  certain 
features  of  the  open  price  system  to  their  other  functions.  Shortly 
after  the  close  of  the  war,  as  a  part  of  its  avowed  purpose  of 
determining  the  reasons  for  the  high  cost  of  living,  the  Depart- 
ment of  Justice  of  the  United  States  began  a  searching  investiga- 

4Rohrbach,  C.  R.,  Printer's  Ink,  Feb.  5,  1920. 

'McKercher,  Clark,  Letter,  Nov.  22,  1920. 

•Armstrong  Bureau  of  Related  Industries,  Chicago,  Illinois. 

'Rohrbach,  C.  R.,  Printers'  Ink,  Feb.  5,  1920. 

•New  York  Journal  of  Commerce,  May  11,  1917;  May  16,  1918. 


12  OPEN  PRICE  ASSOCIATIONS  [176 

tion  into  the  workings  of  certain  of  the  so-called  open  price  asso- 
ciations. Early  in  the  year  1920  a  Bill  of  Complaint9  was  filed 
against  the  largest  open  price  association  in  the  country,  the 
American  Hardwood  Manufacturers'  Association.  A  month  later, 
the  Federal  Court  for  the  Western  District  of  Tennessee10  granted 
an  injunction  restraining  the  members  of  this  association  who 
were  members  of  the  open  price  plan  from  engaging  in  any 
open  price  activity  whatever.  Subsequently  an  announcement 
was  made  by  one  of  the  assistants  to  the  Attorney  General  that 
he  considered  the  law  as  applied  in  this  case  firmly  established 
and  that  any  other  associations  operating  similarly  would  be 
proceeded  against.11  These  events  naturally  reacted  on  the  rapid 
spread  of  associations  of  this  kind  and  resulted  in  the  suspension 
of  open  price  activity  on  the  part  of  many  of  them,12  at  least 
temporarily,  pending  the  outcome  of  the  appeal  that  the  mem- 
bers of  the  hardwood  open  price  plan  had  made  to  the  Supreme 
Court.  The  open  price  movement  is  therefore  now  (1921)  at  a 
standstill. 

Open  price  associations  may  be  found  in  all  parts  of  the 
United  States.  A  large  number  of  them,  if  not  the  largest, 
appear  to  have  their  headquarters  in  New  York  and  Chicago. 
A  glance  at  the  appended  list  of  associations  reputed  to  be  doing 
open  price  work13  will  indicate  how  widely  different  are  the  lines 
of  trade  in  which  they  flourish.  The  list,  which  is  believed  to 
be  a  representative  one,  also  points  to  the  conclusion  that  the 
open  price  movement  in  its  most  highly  developed  form  is 
spreading  most  rapidly  in  lines  of  trade  wherein  the  number  of 
competitors  is  relatively  small.1* 

The  reasons  for  this  would  appear  to  be,  in  the  first  place, 

9Bi/l  of  Complaint,  American  Column  &  Lumber  Co.  et  al  vs.  U.  S.;  Bill  filed 
in  Federal  Court  for  Western  District  of  Tenn.,  Feb.  1920. 

^American  Lumberman,  Mar.  20,  1920.     Decision  rendered  in  March,  1920. 

^American  Lumberman,  Mar.  20,  1920.  Statement  of  Judge  C.  B.  Ames, 
Assistant  to  the  Attorney  General. 

"For  instance,  National  Coal  Assn.,  Hollow  Building  Tile  Assn.,  National  Warm 
Air  Heating  and  Ventilating  Assn.  Several  in  lumber  industry. 

13 Appendix  Exh.  I. 

"One  of  the  largest,  if  not  the  largest,  open  price  association  of  the  fifteen  or 
sixteen  organized  by  Mr.  Eddy,  i.  e.,  The  National  Association  of  Finishers  of 
Cotton  Fabrics,  has  sixty-seven  members.  The  average  number  seems  to  be  no 


177]  DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN  13 

that  groups  of  competitors  in  the  smaller  lines,  not  having  the 
benefit  of  trade  papers,  feel  a  peculiar  need  of  some  medium 
for  learning  of  conditions  of  trade.  The  open  price  system  meets 
this  need.  In  the  second  place  it  is,  generally  speaking,  true 
that  the  more  numerous  the  competitors  in  a  given  line  are  the 
more  difficult  it  is  to  bring  about  effective  cooperation  between 
them.  This  is  particularly  true  when  the  cooperation  required 
is  of  a  most  intimate  and  unprecedented  kind.  Even  the  most 
intelligent  of  business  men  find  it  difficult  to  grasp  the  spirit  of 
cooperation  which  makes  men  willing,  for  example,  to  lay  bare 
before  competitors  vital  statistics  pertaining  to  their  own  busi- 
nesses. Filled,  as  he  is,  with  distrust  and  suspicion  of  the 
motives  and  actions  of  his  competitors,  the  ordinary  business 
man  is  not  easily  reconciled  to  a  program  which  involves  coop- 
eration with  them  in  this  very  intimate  way.  A  long  campaign 
of  education  must  ensue  before  these  barriers  can  be  cleared 
away.  Even  when  he  has  reached  the  point  where  he  is  willing 
to  cooperate,  there  is  the  difficult  task  of  teaching  him  to  be 
accurate,  punctual,  and  regular  in  reporting  such  information  as 
may  be  requested  of  him  by  the  bureau  gathering,  compiling, 
and  disseminating  the  information. 

The  open  price  plan  has  been  in  existence  for  about  nine  years 
only.18  It  would  seem  almost  impossible,  then,  for  lines  of  trade 
with  large  numbers  of  competitors  to  have  arrived  at  a  very  high 
stage  of  development  in  open  price  work.  Some  industries,  like 
the  textile  industry,  do  have  open  price  associations  that  are 
highly  developed  in  their  structure  and  functional  activities,  but 
it  will  generally  be  found  that  their  activities  are  limited  to 
certain  lines  of  trade  in  the  industry  wherein  competitors  are 
relatively  few  and  processes  are  more  or  less  simple  and  there- 
fore comparatively  easy  to  standardize. 

The  lumber  industry,  perhaps,  offers  the  most  conspicuous 
example  of  the  attempt  to  secure  cooperation  of  a  large  body  of 
competitors  in  its  entirety  under  the  open  price  plan.  Even  in 

greater  than  twenty-five.  Cf.  Testimony  of  Wm.  J.  Mathews  before  the  Joint 
Legislative  Committee  on  Housing,  Legislature  of  New  York,  Dec.  29,  1920,  pp. 
4602-4603. 

"This  statement  is  written  in  1921. 


14  OPEN  PRICE  ASSOCIATIONS  [178 

the  most  successful  association  of  the  many  in  the  lumber  indus- 
try doing  open  price  work — the  American  Hardwood  Manufac- 
turers' Association — it  was  found  well  nigh  impossible  to  secure 
sufficient  cooperation  among  competitors  to  make  the  plan  en- 
tirely successful.  Early  in  the  year  1919,  after  an  existence  of 
about  two  years  as  a  consolidation  of  two  associations  that  had 
existed  for  several  years  previous,  the  membership  had  nearly 
reached  the  four  hundred  mark.  This  membership  controlled 
but  twenty-eight  per  cent  of  the  total  hardwood  production  of 
the  industry.16  Thousands  of  small  sawmill  owners  scattered 
over  practically  the  entire  United  States  east  of  the  Mississippi 
River  and  west  of  the  Mississippi  River,  in  the  States  of  Mis- 
souri, Arkansas,  Louisiana,  and  Texas  were  not  members.  The 
United  States  census  for  1910  gives  between  12,000  to  15,000 
independent  hardwood  sawmills.17  Such  statistics  of  stocks, 
production,  et  cetera  as  were  reported  by  the  members  would 
not  give  totals  which  could  be  considered  representative  of  the 
hardwood  industry,  except  in  a  very  crude,  inaccurate  way. 
Enough  competitors  must  cooperate  in  furnishing  information  to 
make  it  possible  to  at  least  reduce  the  operations  of  the  re- 
maining ones  to  a  calculable  basis.  Those  who  did  join  the 
association  were  very  dilatory  in  furnishing  information.  It  was 
found  necessary  to  give  up  the  plan  of  having  all  members  make 
monthly  reports  of  their  production,  because  members  failed  to 
do  so.18 

In  the  coal  industry  an  attempt  has  been  made  to  cope  with 
the  problem  of  getting  cooperation  among  large  numbers  of 
competitors  by  having  several  local  bureaus  for  the  gathering, 
compiling,  and  dissemination  of  statistics,  each  one  of  them  being 
located  in  a  coal  operating  center.  Each  local  bureau  then  keeps 
the  operators  in  its  vicinity  lined  up,  obtains  the  necessary  sta- 
tistics from  them,  compiles  them  and  relays  them  to  the  asso- 
ciation headquarters,  where  they  receive  further  treatment  in 

"American  Column  &  Lumber  Co.  et  al  vs.  U.  S.,  Argument  of  L.  C.  Boyle  before 
the  Supreme  Court,  p.  6. 

"ItiJ.,  p.  35- 

"American  Column  &  Lumber  Co.  et  al  vs.  U.  S.,  Transcript  ofRecord,  Vol.  II 
p. 1107. 


179]  DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN  15 

the  way  of  tabulations  and  compilations,  after  which  they  are 
returned  to  the  various  local  exchanges,  where  they  are  again 
disseminated  among  the  local  operators.19  Fearing  legal  conse- 
quences, the  association  ceased  issuing  market  reports  in  July, 
1920.  How  successful  this  scheme  was  in  getting  the  desired 
cooperation  is  not  known. 

Probably  open  price  associations  occupy  as  important  a  place 
in  the  lumber  industry  as  they  do  anywhere  else.  The  recent 
report  on  the  lumber  industry  rendered  by  the  Federal  Trade 
Commission  to  the  Senate  and  the  House20  discloses  that  all  ten 
of  the  lumber  manufacturers'  associations  affiliated  with  the 
National  Lumber  Manufacturers'  Association  have  been  engaged 
in  open  price  activity.  There  are  only  two  large  associations 
devoting  themselves  principally  to  the  interests  of  manufacturers 
that  are  not  affiliated  with  the  National  Lumber  Manufacturers' 
Association,  namely,  the  National  Hardwood  Lumber  Associa- 
tion and  the  American  Hardwood  Manufacturers'  Association. 
Of  these  only  the  National  Hardwood  Lumber  Association  has 
not  been  doing  open  price  work.  The  Southern  Pine  Association 
ceased  doing  open  price  work  when  the  United  States  Attorney 
General  filed  a  bill  of  complaint  against  the  American  Hardwood 
Manufacturers'  Association.  The  latter  association,  prior  to  the 
cessation  of  its  open  price  activities,  was  not  only  the  most  nota- 
ble example  of  an  open  price  association  in  the  lumber  industry, 
but  it  was  the  largest  open  price  association  in  existence.21 

The  Yellow  Pine  Wholesalers'  Association  having  recently 
ceased  operation  under  the  open  price  plan,  it  appears  that  no 
associations  of  wholesalers  are  now  engaged  in  open  price  work. 

As  far  as  can  be  ascertained,  only  one  retail  lumber  associa- 
tion is  doing  open  price  work,  that  being  the  Chicago  Lumber 
Dealers'  Association.22 

Open  price  associations  seem  to  occupy  a  position  of  nearly 
as  great  importance  in  textiles  as  they  do  in  lumber.  A  chronic  , 

"Editorial,  "How  National  Association  Reports  Sales."  The  Black  Diamond, 
Oct.  ii,  1919. 

^Preliminary  Report,  Federal  Trade  Commission,  Jan.  10,  1921,  Pt.  I,  p.  i. 

J1For  further  discussion,  see  ch.  7,  pp.  137-148. 

^Preliminary  Report,  Federal  Trade  Commission,  Jan.  10,  1921,  Pt.  2,  p.  101. 


l6  OPEN  PRICE  ASSOCIATIONS  [l8o 

condition  of  cut-throat  competition  characteristic  of  the  textile 
industry  has  tended  to  abet  the  movement;23  however,  the  secre- 
tiveness  of  competitors,  explained  in  large  degree  by  the  impor- 
tance to  them  of  securing  individuality  and  originality  of  styles, 
has  impeded  the  movement,24  as  has  a  certain  determined 
opposition  manifested  by  buyers  against  these  associations,  par- 
ticularly in  the  knit  goods  line.20  Close  to  a  dozen  open  price 
associations  are  said  to  be  in  operation.20  All  of  these  exist 
among  manufacturers,  with  the  exception  of  one  or  two  to  be 
found  among  jobbers.27 

The  first  to  adopt  the  open  price  plan  were  the  important 
finishing  firms  (bleachers,  dyers,  printers).  In  1914  they  united 
to  form  the  National  Association  of  Finishers  of  Cotton  Fabrics. 
Mr.  Eddy  organized  it  and  was  its  counsel  from  the  beginning.28 
It  is  said  that  by  the  end  of  1916  all  of  the  cotton  finishers  had 
joined  the  association. 

Its  success  in  helping  the  finishers  to  weather  the  depression 
that  hit  the  textile  industry  in  1914  stimulated  mill  owners  in 
other  centers  to  adopt  the  plan.  By  the  end  of  1915  such  asso- 
ciations existed  in  Boston,  among  knit  goods  manufacturers 
there,  among  mill  owners  at  New  Bedford  and  Fall  River,  and 
among  certain  of  the  mill  owners  in  Southern  cotton  centers. 

Late  in  1915  a  joint  council  composed  of  representatives  from 
the  two  national  associations — the  National  Cotton  Manufactur- 
ers' Association  and  the  American  Cotton  Manufacturers'  Asso- 
ciation— met  to  consider  the  feasibility  of  joining  in  the  open 
price  movement.  As  a  result  of  their  deliberations  it  was  con- 
cluded that  because  of  the  complicated  and  involved  nature  of 
the  dry  goods  trade  it  would  probably  not  be  practicable  for  the 
national  associations  to  attempt  to  do  open  price  work,  and  that 
such  work  could  best  be  outlined  and  developed  in  each  line 
of  trade  taken  as  a  unit.29 

MNew  York  Journal  of  Commerce,  Sept.  18,  1916. 

^Textile  World  Journal ',  Jan.  20,  1917. 

^New  York  Journal  of  Commerce,  Mar.  19,  1920. 

nlbid.,  Mar.  19,  1920. 

"/£/</.,  Mar.  19,  1920. 

™Ibid.,  Nov.  ii,  1915.    Mr.  Eddy  is  called  the  "father"  of  the  open  price  plan. 

"Ibid.,  Nov.  ii,  1915- 


l8l]  DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN  17 

In  the  woolen  industry  open  price  work  was  inaugurated  in 
1917,  when  the  so-called  "Woolen  Exchange"  came  into  exist- 
ence under  the  auspices  of  the  National  Association  of  Woolen 
Manufacturers.30  Its  membership  represents  a  considerable 
percentage  of  the  wool  manufacturing  machinery  of  the  coun- 
try.31 This  is  now  the  only  open  price  association  to  be  found 
in  the  woolen  and  worsted  industry. 

For  a  few  months  the  Pennsylvania  division  of  the  National 
Association  of  Hosiery  and  Underwear  Manufacturers  operated 
an  open  price  plan,  but  an  investigation  into  its  affairs  by  the 
Federal  Trade  Commission  became  the  signal  for  its  abandon- 
ment.32 Among  the  knit  goods  manufacturers  there  now  is 
operated  an  open  price  exchange  called  "The  Knit  Goods 
Manufacturers  of  America."  Its  members  control  about  one- 
third  of  the  entire  production  of  the  industry.33  Other  associa- 
tions are  in  operation  among  the  gingham,  duck,  blanket,  silk, 
and  blouse  and  shirt  manufacturers.34 

As  a  center  of  open  price  activity,  the  iron  and  steel  industry 
is  also  deserving  of  special  mention.  How  extensive  the  move- 
ment is  in  this  industry  may  be  partially  revealed  by  examining 
the  list  of  associations  reputed  to  be  engaged  in  open  price 
activity  which  may  be  found  in  the  appendix.35  There  is  the 
Institute  of  Tool  Manufacturers,  the  National  Bar  Iron  Insti- 
tute, the  Tool  Steel  Society,  the  Cold  Roll  Strip  Steel  Institute, 
the  Bolt,  Nut,  and  Rivet  Institute,  the  Hoop  Band  Strip  Steel 
Association,  the  Rolling  Steel  Door  Society,  the  Steel  Barrel 
Manufacturers'  Association,  the  Architectural  Iron  and  Bronze 
Manufacturers,  Steel  Lockers  and  Shelving  Manufacturers'  Ex- 
change, the  Tap  and  Die  Institute,  Steel  Founders'  Society  of 
America,  National  Association  of  Sheet  and  Tin  Plate  Manufac- 
turers, Range  Boiler  Exchange,  Pressed  Metal  Association, 
National  Association  of  Steel  Furniture  Manufacturers,  Pipe 

^Textile  World  Journal,  Aug.  5,  1916. 
nlbid.,  Jan.  13,  1917. 
^Textile  World  Journal,  May  20,  1918. 
"Ibid.,  May  15,  1918. 

**Gingham  Assn.;  Duck  Assn.;  Blanket  Assn.;  Silk  Association  of  America; 
National  Boys  Blouse  &  Shirt  Manufacturing  Assn.     All  in  New  York  City. 
"This  list  is  not  thought  to  be  complete.     See  Appendix,  Exh.  I. 


l8  OPEN  PRICE  ASSOCIATIONS  [l82 

Fittings  and  Valve  Exchange,  Manganese  Steel  Founders'  So- 
ciety, Manganese  Track  Society,  the  Associated  Manufacturers 
of  Metal  Lath,  Drill  and  Reamer  Society,  and  Bridge  Builders 
and  Structural  Society.  It  is  in  the  iron  and  steel  industry  that 
the  greatest  number  of  typical  open  price  associations  seem  to 
be  found.  Inquiry  develops  that,  with  a  few  possible  excep- 
tions,36 the  associations  here  listed  were  either  organized  by 
Mr.  Eddy  or  by  men  who  came  under  his  influence,  directly  or 
indirectly.  The  majority  of  them  are  in  small  industries,  rela- 
tively speaking,  and  even  the  larger  industries  have  relatively 
few  competitors.  It  may  be  worthy  of  note  that  the  United 
States  Steel  Corporation  is  not  a  member  of  any  open  price 
association.  All  of  the  independent  makers  of  iron  and  steel, 
however,  are  understood  to  be  members. 

With  respect  to  the  relative  distribution  of  open  price  associa- 
tions among  manufacturers,  wholesalers  and  retailers,  it  may  be 
said  that  the  movement  is  almost  exclusively  confined  to  the 
manufacturing  class.  One  or  two  associations  are  known  to  be 
operating  among  jobbers  in  the  textile  industry,37  and  one  among 
a  group  of  retailers  in  the  lumber  industry.38  Until  recently  one 
was  in  operation  among  yellow  pine  lumber  wholesalers.  Whole- 
salers and  retailers  generally  carry  so  many  different  lines  of 
commodities  that  they  find  it  impracticable  to  associate  them- 
selves in  open  price  work.  Retailers  do  not  especially  need  to 
exchange  information  with  respect  to  prices,  because  they  are 
in  the  habit  of  marking  their  goods  so  that  everyone,  including 
competitors,  may  know  what  prices  are  being  asked.  Further- 
more, it  is  to  be  remembered  that,  since  wholesalers  are  engaged 
principally  in  buying  and  selling,  they  have  built  up  an  organi- 
zation which  is  highly  efficient  in  obtaining  its  own  market  infor- 
mation, and  they  are  therefore  as  a  class  less  dependent  on  such 
aid  as  might  be  furnished  to  them  by  an  open  price  association 
than  are  the  manufacturers. 

**Steel  Barrel  Assn.;  Associated  Manufacturers  of  Metal  Lath;  National  Asso- 
iation  of  Steel  Furniture  Manufacturers. 
I7New  York  Journal  of  Commerce ',  Mar.  19,  1920. 

"I.e.  The  Chicago  Retail  Lumber  Dealers'  Assn.  See  Report,  Federal  Trade 
Commission,  Jan.  10,  1921,  Pt.  2,  p.  101. 


183]      DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN       19 

PURPOSES  * 

The  ultimate  aim  of  all  open  price  associations  is  to  effect 
greater  stability  in  business  conditions,  in  order  that  profits  may 
be  made,  if  not  greater,  at  least  more  steady,  dependable,  and 
calculable  from  year  to  year.39 

As  for  the  immediate  objects  of  these  associations,  it  appears 
that  among  the  associations  that  attribute  their  existence  directly 
or  indirectly  to  the  influence  of  Mr.  Eddy,  there  exists  a  very 
close  harmony.  On  the  other  hand  there  appears  to  be  little 
uniformity  among  associations  that  have  worked  out  open  price 
activity  for  themselves,  or  that  have  simply  annexed  open  price 
work  to  other  functions  previously  in  existence. 

The  Eddy  associations   usually  emphasize    as    their    objects: 

1.  The  promotion   of  publicity  in  the  transaction   of  business; 

2.  The  promotion  of  cordial  and  friendly  relations  among  mem- 
bers; 3.  The  absence  of  secrecy  at  meetings,  or  in  the  operations 
of  the  association;  4.  The  non-existence  of  penalties  of  any  kind 
in  connection  with  operations;   5.  The  freedom  of  members  to 
quote  at  all  times  such  prices  and  terms  as  they  please;  6.  The 
collection   and  dissemination  of  statistics  of  importance  to  the 
industry,   including  prices   actually  quoted  or  charged,  but  ex- 
cluding reference  to  future  prices  either  in  reports  or  meetings; 
7.  The  correction  by  legitimate  means  of  all  "unintelligences", 
faulty  standardization,  and  abuses  in  the  trade.    Some  of  them 
also  specifically  have  for  an  object  the  devising  of  cost  accounting 
systems  suitable  for  the  industry,  and  cooperation  in  the  stand- 
ardization of  sizes  and  dimensions.40  Other  objects  are  sometimes 
mentioned  but  they  are  not  peculiar  to  the  operation  of  an  open 
price  association. 

Open  price  associations  that  do  not  fall  in  the  Eddy  class 
show  considerable  variatioa  in  the  number  and  nature  of  the 
objects  set  forth.  The  Ohio  Millers'  State  Association,  for  exam- 
ple, expresses  its  objects  in  a  sentence,  to  wit:  "The  object  of 

S9E.  H.  Gaunt  states  that  the  aim  is  not  only  to  stabilize  prices,  but  to  increase 
the  margin  of  profit.  Cf.  Textile  World  Journal,  Apr.  8,  1916,  p.  1709. 

^Constitution,  Leather  Belting  Exchange;  American  Hardwood  Manufacturers' 
Assn.;  Salt  Producers  Assn.;  Tap  and  Dye  Institute;  Society  of  Manufacturing 
Confectioners;  The  National  Coal  Assn.;  Knit  Goods  Manufacturers  of  America. 


2O  OPEN  PRICE  ASSOCIATIONS  [184 

this  association  is  the  cultivation  of  commercial  good  will  and 
fellowship  among  millers,  the  encouragement  and  protection  of 
their  trade,  the  promotion  by  every  expedient  and  lawful  means 
of  the  interests  of  their  business,  and  to  legally  acquire  and 
disseminate  valuable  mercantile  and  economic  information  of 
interest  to  its  members,  thus  securing  by  fair  and  lawful  means 
the  benefit  of  cooperation."41  There  is  very  little  hint  here  of 
the  existence  of  open  price  activity.  In  fact,  open  price  work 
in  this  instance  is  confined  to  a  weekly  report  of  prices  received 
which  members  mail  to  the  secretary,  who  in  turn  tabulates 
these  prices  and  mails  them  in  mimeograph  form  to  the  con- 
tributing members. 

Another  constitution,  typical  of  the  lumber  industry,42  sets 
forth  nine  objects,  but  only  one  of  these  mirrors  to  any  extent 
the  purposes  usually  associated  with  open  price  work.  This  is 
the  second  object  and  reads  as  follows:  "To  gather,  compile, 
and  disseminate  data  reports,  statistics,  and  information  relative 
to  the  properties,  uses,  values,  production,  transportation,  distri- 
bution, and  consumption  of  and  markets  for  lumber  and  other 
forest  products  in  all  markets,  and  the  best  and  most  economical 
methods  of  manufacturing,  handling,  transporting,  and  disposing 
of  said  forest  products;  to  gather,  compile,  and  disseminate  infor- 
mation as  to  the  taxation  of  forest  products  and  of  timber  lands 
and  the  cultivation,  protection,  and  conservation  of  forests."43 

Returning  to  a  more  detailed  consideration  of  the  objects  as 
set  forth  by  the  typical  Eddy  association,  it  is  found  that  no  one 
object  receives  more  emphasis  than  that  which  aims  to  promote 
cordial  and  friendly  relations  among  members.  The  ordinary 
trade  association  also  makes  this  one  of  its  objects,  but  the 
open  price  association  aims  to  make  its  accomplishment  more 
certain  by  having  meetings  at  frequent  intervals.  Members  of 
the  ordinary  trade  association  usually  meet  once  or  twice  a  year. 
The  motive  in  promoting  cordial  and  friendly  relations  among 
members  is  to  remove  so  far  as  possible  misunderstandings  and 

^Constitution,  Ohio  Millers'  State  Assn. 

^Constitutions  of  the  Southern  Pine  Assn.  and  the  American  Hardwood  Manu- 
facturers'  Assn.  resemble  more  those  of  the  Eddy  Associations. 
^Constitution,  West  Coast  Lumber  Manufacturers'  Assn. 


185]  DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN  21 

ill  feelings  due  to  the  spreading  of  false  reports  and  baseless 
charges  and  ignorance  of  conditions  prevailing  in  the  industry.44 

A  second  object,  of  little  less  importance,  is  that  which  refers 
to  the  collection  and  dissemination  of  accurate  information  relat- 
ing to  the  industry,  including  statistics  of  prices.  The  National 
Association  of  Finishers  of  Cotton  Fabrics  puts  it  this  way: 
"To  collect  and  disseminate  accurate  information  relating  to  the 
finishing  of  cotton  fabrics,  to  the  end  that  each  finisher,  however 
small  his  output,  may  be  placed,  in  so  far  as  data  for  the  intelli- 
gent conduct  of  his  business  goes,  on  a  footing  of  equality  with 
other  finishers."45  It  may  be  worth  noting,  in  passing,  that  it 
is  here  considered  a  valuable  object  to  help  put  the  small  com- 
petitor on  a  footing  of  equality  with  the  larger  competitor  in 
the  matter  of  knowledge  of  business  conditions.  The  fifth  object 
of  the  Bridge  Builders'  Society  is  "to  establish  frankness  regard- 
ing terms,  bids,  prices  actually  made."48  With  reference  to 
prices,  nearly  always  there  is  to  be  found  a  provision  which 
prohibits  members  from  discussing  what  their  future  prices  are 
to  be.  This  provision  is  intended  to  make  it  clear  that  there  is 
to  be  no  attempt  to  control  the  trend  of  future  prices,  but  merely 
to  record  past  prices.  To  attempt  to  control  future  prices  would 
be  illegal.47 

In  this  connection  the  following  quotation  is  found  to  be 
typical:  "To  bring  out  in  the  open  all  existing  competitive 
conditions  and  to  introduce  an  open  price  policy,  to  the  end 
that  whatever  price  information  is  distributed  will  be  absolutely 
accurate  and  confined  to  purely  statistical  information  regarding 
sales  and  prices  that  have  been  actually  made.  Nothing  herein 
stated  permits  any  member  to  file  or  otherwise  give  any  infor- 
mation regarding  any  price  he  expects  to  make  or  would  like  to 
obtain."48 

Provisions  that  there  are  to  be  no  penalties  of  any  kind  in 

"Constitution,  Society  of  Manufacturing  Confectioners. 

^Constitution,  National  Association  of  Finishers  of  Cotton  Fabrics,  quoted  by 
H.  R.  Tosdal,  "Open  Price  Associations."  Economic  Review,  June  17,  1917. 

^Constitution,  Badge  Builders'  Society,  quoted  by  H.  R.  Tosdal,  "Open  Price 
Associations."  Economic  Review,  June  17,  1917. 

47This  is  discussed  in  ch.  8,  pp.  161-162. 

^Constitution,  Society  of  Manufacturing  Confectioners. 


22  OPEN  PRICE  ASSOCIATIONS  [l86 

connection  with  the  operation  of  the  plan  are  of  course  put  in 
in  order  to  show  the  clear  line  of  separation  that  exists  between 
open  price  associations  and  combinations  that  attempt  to  enforce 
agreements  to  control  output  or  prices  by  means  of  penalties. 
The  only  penalty  usually  provided,  if  it  may  be  called  such,  is 
that  those  who  do  not  file  the  information  called  for  by  the 
reporting  plan  get  no  information.  Those  who  file  only  part  of 
the  information  called  for  get  like  information  in  return,  and  no 
more.  One  association  has  an  additional  penalty  to  the  effect 
that  a  failure  to  report  for  twelve  days  in  six  months  will  cause 
the  member  failing  to  be  dropped  from  membership.49  The 
laxness  shown  in  reporting  has  made  provisions  of  this  kind 
necessary. 

The  further  provision,  that  members  are  to  be  free  at  all 
times  to  quote  such  prices  and  terms  as  they  please,  also  aims 
to  show  clearly  that  the  open  price  association  has  nothing  in 
common  with  illegal  combinations  of  one  kind  or  another  that 
attempt  to  put  price  restraints  upon  members.  It  may  be  said 
in  this  connection  that  some  open  price  associations,  at  least, 
expect  members  who  have  made  a  particularly  low  price  to  ex- 
plain in  meeting  the  reasons  that  prompted  them  to  make  this 
low  price.50  Others  merely  provide  the  opportunity  for  such 
explanations  to  be  made.  As  a  rule  no  one  but  the  secretary 
knows  the  identity  of  the  persons  that  have  made  this  price. 
Without  actually  making  their  identity  known  he  will  invite 
such  persons  to  make  an  explanation  if  they  care  to  do  so.51 

The  promotion  of  publicity  in  all  business  transactions  and 
absence  of  secrecy  in  meetings  and  in  association  operations  is 
insisted  on  by  those  associations  that  endeavor  to  follow  strictly 
the  principles  laid  down  by  Mr.  Eddy.  Mr.  Eddy  writes  as 
follows:  "There  is  no  reason  why  the  American  manufacturer 
should  not  throw  his  shop  open  to  customers,  why  he  should  not 
mark  everything  he  makes  in  plain  figures  and  let  everybody 
know  what  those  figures  are,  changing  them  as  he  pleases,  but 

^Reporting  Plan,  American  Hardwood  Manufacturers'  Assn.,   Transcript  of 
Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol;  I,  p.  86. 
80Lord,  F.  W.,  Ethics  of  Contracting  and  Stabilizing  of  Profits,  p.  174. 
"The  National  Association  of  Box  Manufacturers  follows  this  procedure. 


187]  DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN  23 

changing  them  to  all  alike,  making  such  discounts  as  he  pleases 
on  large  orders,  but  making  them  openly."52  Inquiry  develops 
that  few  of  the  open  price  associations  are  willing  to  go  to  the 
length  of  inviting  buyers  to  utilize  information  that  has  been  col- 
lected in  the  central  office.  The  Hardwood  Manufacturers'  Asso- 
ciation is  a  notable  exception.  In  this  case  the  Manager  of 
Statistics  encouraged  buyers  to  make  inquiries,  for  example, 
regarding  the  location  of  items  of  stocks  of  lumber  and  the 
quantities  available.53  Some  of  the  associations  permit  members 
to  invite  customers  to  attend  meetings;5*  others  do  not.55  The 
American  Hardwood  Manufacturers'  Association  was  very  free 
in  permitting  outsiders  to  attend  meetings,  and  hardly  a  meeting 
passed  that  was  not  attended,  either  by  customers,  representatives 
of  the  press,  or  other  outsiders.56  It  is  evident  that  few  members 
of  open  price  associations  have  yet  reached  the  point  where  they 
are  willing  to  confide  their  business  affairs  to  the  public.  This 
is  not  to  be  wondered  at.  The  idea  that  business  should  be 
conducted  in  secret  has  so  long  had  possession  of  the  business 
man  that  it  will  take  years  of  education  to  persuade  him  to  adopt 
the  policy  of  full  publicity.  In  the  retail  trade,  "it  has  taken  a 
century  to  grow  into  the  one-price-plainly-marked  policy."67 

The  object  which  calls  for  the  correction  of  all  "unintelli- 
gences"  is  in  line  with  the  idea  that  ignorance  of  competitive 
conditions  is  a  millstone  to  industrial  prosperity.  In  this  connec- 
tion, the  purpose  as  expressed  by  the  American  Hardwood 
Manufacturers'  Association  is  "to  disseminate  among  members 
accurate  knowledge  of  production  and  marketing,  so  that  each 
member  may  gauge  the  market  intelligently  instead  of  guessing 
at  it."58 

Cooperation  in  devising  cost  accounting  systems  and  coopera- 

KEddy,  A.  J.,  New  Competition,  1912,  p.  108. 

^Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II,  p.  1101. 
S4For  instance,  Society  of  Manufacturing  Confectioners,  American  Hardwood 
Manufacturers'  Assn. 

MSteel  Barrel  Manufacturers'  Assn.  for  instance. 

^Minutes  of  Meeting,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol. 

I,  p.  165. 

"Eddy,  A.  J.,  New  Competition,  1912,  p.  115. 

"Gadd  Exhibit  "B,"  Record,  American  Column  &  Lumber  Co.  vs.  if.  S.,  Vol. 

II,  p.  1226. 


24  OPEN  PRICE  ASSOCIATIONS  [l88 

tion  in  the  standardization  of  sizes  and  dimensions  are  not  func- 
tions that  are  peculiar  in  any  sense  to  open  price  associations. 
These  are  very  common  activities  of  the  ordinary  trade  associa- 
tion. Knowledge  of  costs  makes  an  intelligent  competitor  out  of 
an  ignorant  one.  Open  price  associations  can  therefore  not 
afford  to  ignore  this  function.  Altho  only  a  few  associations 
give  the  special  mention  of  cost  accounting  that  its  importance 
warrants,  yet  it  will  be  found  that  practically  all  open  price  asso- 
ciations are  engaged  in  cost  educational  work.  It  is  noteworthy 
that  one  association  states  that  its  purpose  in  devising  a  uniform 
system  of  cost  accounting  "is  not  to  impose  upon  any  member 
any  cost  items  or  to  use  in  any  manner  the  cost  system  as  a 
means  for  controlling  prices."59  Cooperation  in  standardization 
of  sizes,  dimensions,  and  processes,  et  cetera,  is  an  integral  part 
of  the  work  of  all  open  price  associations,  because  prices  cannot 
be  intelligently  compared  unless  the  products  subject  to  price 
quotation  are  comparable  in  size,  shape,  and  quality. 

Other  objects  of  open  price  associations,  such  as  the  exchange 
of  information  relating  to  contracts,  returned  goods,  cancella- 
tions, advertising,  and  credits  are  not  usually  given  specific 
mention  in  constitutions  but  are  provided  for  by  some  such  clause 
as  "the  collection  and  dissemination  of  statistics  of  importance 
to  the  industry."60 

HISTORIC  ORIGIN 

The  earliest  open  price  associations  of  which  record  can  be 
found  had  their  birth  in  1911  in  the  iron  and  steel  industry  and 
in  1912  in  the  lumber  industry. 

In  the  iron  and  steel  industry,  the  earliest  association  on  record 
is  that  of  the  Bridge  Builders'  Society,  now  known  as  the  Bridge 
Builders'  and  Structural  Society,  with  headquarters  in  New  York 
City.  This  society  was  organized  by  Mr.  Eddy  in  1911.  Twenty- 
five  companies  doing  structural  and  bridge  work  went  into  it. 
Only  one  important  independent  concern  did  not  join;  this  was 

^Constitution,  Knit  Goods  Manufacturers  of  America,  Textile  World,  May  19, 

1917- 

"The  following  exception  is  noted:  "To  diffuse  accurate  and  reliable  information 
among  its  members  as  to  the  standing  of  merchants  and  others  engaged  in  making 
or  selling  of  knit  goods  or  the  furnishing  of  materials  therefor."  Quoted  from 
Constitution,  Knit  Goods  Manufacturers  of  America,  Textile  World,  May  19,  1917. 


189]  DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN  25 

a  subsidiary  corporation  of  the  United  States  Steel  Corporation, 
namely,  the  American  Bridge  Co.  Mr.  Eddy  organized  this 
association  strictly  along  the  lines  advocated  in  his  book  which 
made  its  appearance  a  year  later.61  Meetings  were  to  be  held 
once  a  month.  They  were  to  be  public.  All  orders,  prices,  and 
tonnage  were  to  be  reported  to  a  secretary.  Those  who  filed 
copies  of  bids  pertaining  to  any  given  piece  of  work  would  imme- 
diately receive  a  statement  from  the  secretary  showing  the  prices 
indicated  on  all  the  other  bids  that  had  been  filed.  Orders 
would  be  handled  in  the  same  way.  Once  a  month  the  secretary 
would  report  to  the  whole  society  the  tonnage  taken  by  each 
member  during  the  past  month,  together  with  the  total  tonnage. 
A  constitution  and  by-laws  were  adopted  similar  in  form  to  those 
which  have  been  described  as  being  typical  of  the  Eddy  associa- 
tions. The  following  quotation  taken  from  the  fifth  object  of 
the  constitution  illustrates  the  care  taken  to  make  clear  that 
there  was  no  intent  to  restrict  competition:  "To  this  end  each 
member  of  the  society  agrees  to  file  with  the  secretary  copies 
of  all  bids,  terms,  and  prices  within  such  period  after  same 
are  made  as  may  reasonably  be  required  by  resolution  or  by-law, 
it  being  definitely  understood  that  each  member  is  at  all  times 
free  to  make  such  bids  and  quote  such  terms  and  prices  as  he 
pleases,  and  to  change  the  same  at  will,  either  before  or  after 
filing  with  the  secretary,  either  before  or  after  receiving  informa- 
tion regarding  bids,  terms,  and  prices  made  by  others,  the  only 
obligation  being  to  file  promptly  all  bids,  terms,  and  prices  as 
the  same  may  be  from  time  to  time  made."62 

The  second  open  price  association  to  be  founded  in  the  iron 
and  steel  industry  was  the  Manganese  Track  Society,  in  1912, 
and  the  third,  the  Manganese  Steel  Founders'  Society,  in  1913. 
They  were  patterned  after  the  Bridge  Builders'  Society.63  Fol- 
lowing these  the  movement  took  on  greater  rapidity,  with  the 

"Eddy,  A.  J.,  New  Competition,  New  York,  1912. 

^Testimony  ofj.  S.  Dean,  Record,  U.  S.  vs.  United  States  Steel  Corporation, 
Vol.  II,  pp.  797-811. 

"Testimony  of  J.  S.  Dean,  Record,  U.  S.  vs.  United  States  Steel  Corporation, 
Vol.  XX,  pp.  7970,  7971. 


26  OPEN  PRICE  ASSOCIATIONS 

result  that  there  now  exists  a  score  or  more  open  price  associa- 
tions in  the  iron  and  steel  industry. 

The  lumber  manufacturers  started  to  work  out  their  own  sys- 
tem of  exchanging  information  relative  to  stocks,  production, 
shipments,  and  sales  as  early  as  1912.  Even  before  this  time64 
the  then  largest  association  among  lumber  manufacturers,  the 
Yellow  Pine  Association,  later  reorganized  under  the  name  of 
the  Southern  Pine  Association,  was  collecting  statistics  of  stocks, 
production,  and  shipments,  and  occasionally  the  secretary  would 
call  for  a  report  of  sales.65  He  used  these  reports  of  sales  as  a 
basis  for  making  up  a  price  list  and  also  as  a  means  of  learning 
how  closely  members  were  conforming  to  the  price  list  previously 
issued  In  making  up  the  new  price  list  the  secretary  would 
include  in  it  only  the  highest  prices  shown  by  any  of  the  sales 
reports.  The  list  would  then  be  issued  to  members  with  the 
understanding  that  it  was  to  be  used  as  a  guide  in  quoting 
future  prices.  The  result  was,  in  the  words  of  the  judge  of  the 
Supreme  Court  of  Missouri,  who  condemned  this  practise,  that 
"prices  charged  revolved  about  prices  fixed  like  planets  in  their 
orbits  revolve  about  the  sun."66  The  plan  was  a  price  boosting 
scheme  pure  and  simple.  It  was  altogether  incompatible  with 
the  open  price  plan,  which  requires  that  members  are  to  be  free 
to  quote  such  prices  as  they  please,  and  that  all  prices  filed  with 
the  secretary  shall  be  reported  by  him  to  the  members,  be  they 
high  or  low.  Following  this  condemnation  by  the  court,  the  yel- 
low pine  manufacturers  involved  reorganized  on  legitimate  open 
price  lines.  It  was  at  this  reorganization  meeting  that  some  of 
the  men  present  called  Mr.  Eddy's  attention  to  the  fact  that  the 
plan  he  was  explaining  to  them  was  already  being  tried  out  in 
a  small  way  by  a  group  of  lumber  manufacturers  in  Mississippi.67 

Inquiry  made  by  the  writer  of  one  of  the  men  present  at  this 
meeting  elicits  the  following:  "The  account  that  you  found 
in  the  American  Lumberman,  December  20,  1913,  is  correct.  The 
open  price  idea  was  started  in  Laurel,  Mississippi,  by  a  group 

MAs  early  as  1906.     Cf.  State  vs.  Arkansas  Lumber  Co.  et  al,  169  S.  W.,  p.  156. 

KIbid.t  p.  156. 

"Ibid.,  p.  177. 

" 'American  Lumberman,  Dec.  10,  1913. 


I9l]  DEFINITION,  PREVALENCE,  PURPOSES,  ORIGIN  27 

of  three  or  four  mills  in  this  city  in  an  informal  way.  At  that 
time  each  mill  made  four  or  five  copies  of  orders  received  each 
day  and  sent  one  of  these  copies  to  each  of  the  other  mills 
in  town.  After  a  time,  other  neighboring  mills  asked  to  be  put 
on  the  exchange  list  and  some  four  or  five  mills  in  nearby  towns 
were  added.  No  central  secretary  was  used  in  compiling  or 
sending  out  the  information.  This  system  ran  along  for  several 
months  and  was  very  successful  and  beneficial. 

"In  December,  1913,  Mr.  Eddy,  an  attorney  living  in  Chicago, 
requested  the  yellow  pine  representatives  to  meet  him  in  St. 
Louis  to  hear  a  talk  on  the  open  price  competition  idea,  which 
he  had  developed  in  several  other  industries.  The  writer  attended 
this  meeting,  and  much  to  his  surprise  found  out  that  Mr.  Eddy's 
plan  was  merely  an  elaboration  of  the  system  which  we  already 
had  in  effect. 

'Whether  or  not  Mr.  Eddy  was  the  originator  of  the  idea,  I 
am  unable  to  state.  It  may  be  that  in  1913  we  read  of  his  plan 
and  tried  it  on  our  own  initiative.  I  cannot  state  positively 
whether  this  is  the  case,  or  whether  the  same  idea  occurred  to  us 
without  knowledge  of  Mr.  Eddy's  plan."68 

It  would  appear  from  this  that  altho  Mr.  Eddy's  influence 
in  the  lumber  industry  was  early  felt,  there  is  some  room  for 
belief  that  the  open  price  movement  in  an  elementary  form,  at 
least,  had  originated  in  certain  localities  independently  of  Mr. 
Eddy's  intervention,  if  not  of  his  influence.  This  point  of  view 
is  further  substantiated  by  information  received  from  the  secre- 
tary of  a  lumber  manufacturers'  association  having  headquarters 
in  Oregon.69  He  writes  as  follows:  "You  are  right  in  supposing 
that  this  association  has  operated  an  open  price  plan,  or  as  we 
have  called  it,  an  information  bureau,  since  1912.  Our  idea 
originated  in  a  way  within  the  association,  but  it  first  became 
effective  locally  in  certain  regions  on  the  West  Coast,  where  the 
manufacturers  of  fir  created  small  exchanges  independently  for 
the  exchange  of  sales  data."  He  adds,  however,  "but  it  is  my 
recollection  that  a  book  was  written  on  the  subject  and  that  the 
writer  of  the  book  or  pamphlet  made  numerous  addresses  on  the 

"Gardiner,  P.  S.,  Letter  dated  Nov.  26, 1920. 
"Western  Pine  Manufacturers'  Assn. 


28  OPEN  PRICE  ASSOCIATIONS 

subject  in  various  parts  of  the  country.  I  am  inclined  to  think 
that  this  was  the  origin  of  the  idea."70  He  is  undoubtedly 
referring  here  to  Mr.  Eddy.  So-called  "Information  Bureaus" 
also  were  developed  in  the  year  1912  by  the  West  Coast  Lum- 
bermen's Association,  the  North  Carolina  Pine  Association,  and 
the  Northern  Hemlock  and  Hardwood  Manufacturers'  Association. 

Evidence  seems  to  warrant  the  conclusion  that  the  origin  of  open 
price  associations  in  the  lumber  industry  is  attributable  to  the  pub- 
licity that  Mr.  Eddy  gave  to  his  plan  in  the  years  of  1911  and  1912. 

The  lumber  and  iron  and  steel  industries  offer  the  earliest 
examples  of  open  price  associations  on  record.  The  other  indus- 
tries seem  to  have  followed  in  their  wake. 

The  Babson  Statistical  Organization  helped  to  popularize  the 
open  price  movement  by  devoting  a  session  to  it  at  each  of  its 
annual  conferences  for  manufacturers  in  1914  and  I9I5-71  Fur- 
thermore this  organization  began  publishing,  as  a  part  of  its  ser- 
vice to  manufacturers,  a  set  of  bulletins  that  are  intended  to 
serve  as  a  guide  to  those  who  are  contemplating  inaugurating 
the  open  price  plan.72 

Enterprising  men  who  have  picked  up  the  rudiments  of  the  plan 
either  from  Mr.  Eddy  himself,  or  from  his  writings,  have  organ- 
ized secretarial  service  bureaus.  These  are  so  organized  that  they 
can  take  over  the  operation  of  several  open  price  associations  and 
run  them  simultaneously.  Secretaries  of  these  bureaus  are  con- 
stantly on  the  watch  for  opportunities  to  organize  manufacturers 
into  open  price  associations  and  are  proving  a  strong  factor  in 
their  development.  Some  of  them  operate  as  many  as  a  dozen 
associations.73  The  result  of  the  publicity  given  to  the  movement 
through  the  instrumentality  of  these  various  factors,  is  becoming 
increasingly  apparent.  There  is  hardly  a  trade  secretary  that  does 
not  know  something  of  the  workings  of  the  plan  and  a  surprising 
number  of  business  men  are  acquainted  with  it. 

"Cooper,  A.  W.,  Secretary,  Western  Pine  Manufacturers'  Assn.,  Letter,  Dec.  17,. 
1920. 

"Gaunt,  E.  H.,  "Open  Price  Plan  for  Woolens  and  Worsteds,"  Textile  World 
Journal,  April  8,  1916,  p.  1709. 

71  Babson  s  Reports  on  Cooperation,  Wellesley  Hills,  1915. 

7lFor  instance,  Organization  Service  Corporation,  New  York  City;  A.  A.  Ains- 
worth,  New  York  City. 


CHAPTER  II 

DESCRIPTION  OF  THE  COMBINATION  AND  ASSOCIA- 
TION DEVELOPMENT  IN  THE  IRON  AND  STEEL 
INDUSTRY  AND  COMPARISON  WITH  THE 
OPEN  PRICE  ASSOCIATION 

Beginning  with  the  combinations,  in  existence  some  twenty 
years  ago,  and  closing  with  the  open  price  association,  there  is 
manifest  a  more  or  less  orderly  development  from  one  stage  of 
activity  to  another.  These  stages  may  be  named  as,  first,  the 
Combinations,  second,  the  Statistical  Associations,  third,  the  Gary 
Dinners,  fourth,  the  Open  Price  Associations.  Each  of  these  types 
will  be  discussed  and  compared  with  the  open  price  type. 

The  price  fluctuating  evil  so  characteristic  of  the  iron  and  steel 
industry  has  led  iron  and  steel  producers  to  seek  remedies  in  these 
various  forms  of  associated  activity.  The  combinations  exempli- 
fied by  such  organizations  as  the  Structural  Steel  Association,  the 
Steel  Shafting  Association  and  the  Steel  Plate  Association,  had 
little  in  common  with  the  open  price  association.1  These  combi- 
nations resorted  to  price  fixation,  regulation  of  output,  and  divi- 
sion of  business  on  a  percentage  basis.2  The  open  price  associa- 
tion seeks  to  put  each  competitor  in  possession  of  all  the  salient 
facts  of  the  industry,  trusting  that  the  desired  objectives  will  be 
attained  by  individual  independent  action,  without  collusion  of 
any  kind,  through  the  exercise  of  intelligent  management  and 
control  over  each  business  unit. 

In  addition  to  price  fixation,  regulation  of  output  and  allotment 
of  business  were  outstanding  features  of  the  combination.3  Obvi- 
ously records  had  to  be  kept  to  show  in  what  degree  members 
were  carrying  out  their  agreement.  These  usually  took  the  form 
of  sworn  monthly  statements  of  output,  orders  taken,  and  tonnage 

'These  operated  from  about  1900  to  1904.  Cf.  Record,  U.  S.  vs.  U.  S.  Steel  Cor- 
poration,  Vol.  IV,  p.  1413;  Vol.  II,  p.  821. 

*Record,\J.  S.  vs.  U.  S.  Steel  Corporation, Vol.  IV,  p.  1413;  Vol.  XV,p.  6046. 


29 


3O  OPEN  PRICE  ASSOCIATIONS  [194 

X 

shipped.  In  the  majority  of  cases,  the  price  being  fixed,  no  pur- 
pose was  served  in  requiring  a  report  of  prices.  Penalties  were 
provided  for  those  who  exceeded  their  percentage  of  allotted  busi- 
ness. Those  who  exceeded  the  output  agreed  upon,  were  taxed  a 
certain  amount,  based  on  a  charge  per  ton  or  per  hundred  tons 
on  the  amount  of  the  excess.  Those  who  fell  short  of  shipping 
their  allotted  percentage,  were  credited  with  a  corresponding 
amount  based  on  the  amount  that  had  been  shipped  less  than  the 
allotted  percentage.  The  commissioner  after  making  these  cal- 
culations would  send  the  compiled  reports  to  each  member.4 

It  may  be  noted  that  the  exaction  of  penalities,  tho  necessary 
in  those  days  when  so  little  confidence  prevailed  among  compet- 
itors, is  entirely  out  of  harmony  with  the  philosophy  of  the  open 
price  plan  which  has  for  its  aim  the  upbuilding  of  a  spirit  of  con- 
fidence and  trust  among  competitors. 

The  reporting  system  in  use  among  combinations  may  have 
given  Mr.  Eddy  the  clue  which  led  him  to  develop  the  reporting 
system  that  he  did  in  the  open  price  association.  The  combina- 
tion reporting  scheme,  altho  narrow  in  scope,  resembled  somewhat 
that  in  vogue  in  the  open  price  association.  The  combination 
system  called  for  reports  of  production,  orders,  and  shipments; 
so  does  the  open  price  system.  The  commissioner  compiled  and 
disseminated  these  statistics;  so  does  the  secretary  of  an  open 
price  association.5  The  form  in  which  the  statistics  were  compiled 
was  of  course  not  identical  with  forms  in  use  by  open,  price  as- 
sociations because  the  objects  have  not  been  similar.  The  object 
of  the  members  of  the  combination  was  to  regulate  business  by 
means  of  collusion  in  controlling  output  and  dividing  business. 
Such  statements  as  were  prepared  and  disseminated  were,  there- 
fore, intended  to  show  the  members  how  closely  they  were  con- 
forming to  the  provisions  of  their  agreement.  The  object  of  the 
open  price  association  being  to  educate  members  in  all  conditions 
pertaining  to  their  business  so  that  they  may  compete  intelligently, 
such  compiled  reports  as  are  disseminated  are  intended  to  en- 
lighten each  member  with  reference  to  his  relative  position  as 

^Testimony,  W.  C.  Temple,  Record,  Vol.  XV,  p.  6032. 

^Reporting  Plan,  American  Hardwood  Manufacturers'  Assn.,  Record,  American 
Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  I,  p.  86. 


195 ]  IRON  AND  STEEL  INDUSTRY  31 

regards  volume  of  production,  orders  and  shipments,  et  cetera. 
The  foregoing  makes  it  clear  that  the  combination  and  the  open 
price  association  have  no  essential  features  in  common  except  a 
certain  resemblance  in  the  manner  of  reporting  statistics  of  pro- 
duction, orders  and  shipments. 

It  has  been  noted  that  the  ultimate  object  of  combination  and 
open  price  association  activity  has  been  to  stabilize  conditions.  It 
is  perhaps  worth  while  to  note  in  passing  that  their  immediate 
objects  also  seem  to  have  points  of  identity.  A  prominent  object 
of  both  types  of  association  apparently  has  been  to  combat  the 
efforts  put  forth  by  buyers  to  "beat  down"  prices  by  misrepre- 
senting prices  actually  current  among  competitors.  This  practise 
seems  to  have  prompted  plate  and  structural  steel  producers  to 
organize  the  structural  and  plate  pools  in  1900.  Note  the  testi- 
mony of  the  commissioner: 

"Prior  to  1897  there  were  disastrous  times  in  the  steel  industry. 
Manufacturers  of  structural  and  its  sister  product,  plate,  which 
enters  largely  into  structural,  had  been  fooled  so  often  and  so 
completely  by  some  of  the  biggest  buyers  of  structural  material 
in  the  market  that  apparently  there  was  always  somebody  who 
was  ready  to  quote  twenty  or  twenty-five  per  cent  below  the  cost 
to  produce  the  manufactured  stuff,  judging  from  the  quotations 
that  buyers  would  bring  to  the  manufacturers.  Finally  two  or 
three  manufacturers  got  together  and  swapped  notes  and  found 
to  their  surprise  that  each  of  them  had  been  quoting  prices,  five, 
six,  and  seven  dollars  a  ton  less  than  they  had  ever  quoted  to 
anybody,  and  they  awoke  to  the  fact  that  they  had  probably  been 
lied  to."6 

When,  however,  it  came  to  the  point  of  determining  upon  a 
remedy  the  methods  chosen  proved  to  be  at  opposite  poles  from 
each  other.  The  open  price  plan  aims  to  meet  a  situation  of  this 
kind  by  providing  for  the  exchange  of  information  between  com- 
petitors. Knowing  all  the  facts,  the  contention  is  that  they  will 
then  not  be  deceived  into  meeting  a  price  that  is  purely  fictitious.7 
Each  competitor  is  left  free  to  name  his  own  price,  but  he  is  now 
in  a  position  to  do  so  intelligently.  The  organizers  of  these  pools 

•Temple,  Record,  Vol.  XV,  p.  6046. 
7Cf.  Jay,  Record,  Vol.  XX,  p.  7971. 


32  OPEN  PRICE  ASSOCIATIONS  [196 

attempted  to  meet  the  situation  by  fixing  a  minimum  price  to 
which  all  agreed  to  adhere.  Speaking  of  the  action  taken  by  the 
organizers  of  these  pools,  the  commissioner  went  on  to  say: 

"They  called  for  a  meeting  among  a  large  number  of  them  and 
they  found  that  the  only  way  to  block  that  thing  was  for  them  to 
get  together  and  agree  on  a  price  and  tell  each  other  the  honest 
truth  as  to  what  prices  they  were  quoting."8 

With  the  decade  beginning  1900,  the  Government  began  vigor- 
ously to  enforce  the  Sherman  Act.  In  view  of  this  state  of  affairs 
Mr.  Gary  decided  to  withdraw  all  subsidiaries  of  the  United  States 
Steel  Corporation  from  participation  in  pools.  This  step  was  taken 
in  1904  and  led  to  the  immediate  disruption  of  the  principal  com- 
binations in  the  iron  and  steel  industry.9 

They  were  replaced  by  the  so-called  Statistical  Associations. 
The  members  formerly  associated  in  the  combinations  simply 
changed  the  nature  of  their  activities  so  that  they  might  appear 
less  offensive.  With  this  stage  of  association  activity,  it  becomes 
easier  to  discern  resemblances  to  the  open  price  form  of  activity. 

Members  have  now  made  considerable  headway  toward  be- 
coming more  free  as  agents.  Business  is  no  longer  apportioned  nor 
production  regulated  by  means  of  agreement.  Penalties  are  no 
longer  exacted.  There  are  no  agreements  in  writing.  Members 
are  no  longer  required  to  submit  affidavits  with  their  reports. 
Voting  at  meetings  to  determine  how  members  shall  conduct 
their  business  operations  is  abandoned.10  Members  continue  to 
make  reports  every  month  of  their  production,  orders,  and  ship- 
ments,11 but  the  purpose  in  doing  so  is  no  longer  that  of  deter- 
mining what  penalaties  or  credits  may  be  due  members  for  exceed- 
ing or  falling  short  of  allotted  quotas,  but  of  keeping  members 
informed  as  to  whether  they  have  been  maintaining  the  same 
relative  position  in  the  industry  that  they  had  previously  occu- 
pied.12 It  is  probably  fair  to  assume  that  moral  obligation  to 
abide  by  the  percentages  approximating  those  which  were  en- 


iJ.,  Vol.  XV,  p.  6046. 
'Ibid.,  pp.  6034-5. 

10Langan,  Record,  Vol.  II,  p.  839-842;  King,  Record,  Vol.  VI,  p.  2088. 
"Ibid.,  p.  839. 
"Temple,  Record,  Vol.  XV,  p.  6037. 


197]  IRON  AND  STEEL  INDUSTRY  33 

forced  by  the  combination  had  now  supplanted  hard  and  fast 
agreements  backed  up  by  a  money  penalty. 

Whether  at  meetings  members  made  declaration  of  purposes 
respecting  their  production  policy  is  not  made  clear,  but  it  is 
clear  that  each  member  made  an  announcement  of  prices  which 
he  expected  to  charge  and  that  as  a  result  of  their  deliberations 
each  member  would  announce  a  price  identical  with  that  of 
every  other  member.  Furthermore,  it  was  generally  understood 
that  the  price  announced  was  to  hold  until  the  next  meeting.13 
Evidently  strong  forces  were  in  operation,  even  under  the  statis- 
tical form  of  association,  to  prevent  freedom  of  action. 

Members  of  open  price  associations  are  free  agents.  It  is 
quite  clear  that  members  of  these  statistical  associations  were 
not  free  agents.  However  we  have  seen  that  considerable  prog- 
ress toward  freedom  from  restraints  was  made  under  the  statis- 
tical form  of  association. 

Owing  to  the  strong  condition  of  the  market  for  iron  and  steel 
in  the  summer  of  1907,  interest  in  the  statistical  associations 
practically  ceased  and  this  form  of  association  passed  out  of 
existence.14  The  financial  crisis  very  soon  followed.  Fearing 
that  the  demoralization  spread  by  the  panic  of  1907  would  also 
envelop  the  iron  and  steel  industry  unless  steps  were  immedi- 
ately taken  to  head  it  off,  Mr.  Gary  invited  the  leading  iron  and 
steel  producers  to  a  dinner,  the  purpose  being  to  talk  over  the 
situation  with  a  view  of  determining  what  might  be  done  to- 
avert  disaster.15  This  was  the  emergency  that  brought  the  Gary 
dinner  system  into  being.  The  system  proved  somewhat  suc- 
cessful in  stabilizing  conditions.  Therefore  it  was  retained  after 
the  period  of  the  emergency  had  passed.  For  a  short  period 
(1909-1910)  the  system  temporarily  broke  down,  only  to  be  re- 
sumed again  at  the  expiration  of  that  period  under  the  auspices 
of  the  American  Iron  and  Steel  Institute.  The  system  remained 
in  operation  until  in  1911,  when  the  Government  brought  suit 
against  the  United  States  Steel  Corporation;  whereupon  it  was, 
abandoned.16 

"King,  Record,  Vol.  VI,  p.  2083. 

"Robinson,  M.  H.,  Unpublished  Manuscript,  Informal  Combinations,  p.  37. 

ulbid.y  Gary  Dinner  System,  p.  2. 

ulbid.,  pp.  26,  28,  41. 


34  OPEN  PRICE  ASSOCIATIONS  [198 

The  advent  of  the  Gary  dinners  marks  the  beginning  of  an- 
other stage  of  association  development.  In  connection  with  the 
Gary  dinners  Mr.  Gary  introduced  two  new  concepts  which  Mr. 
Eddy  was  to  seize  upon  and  make  the  very  foundation  stones 
for  his  system  of  cooperative  competition.  He  conceived  the 
idea,  first,  that  systematic  attempts  should  be  made  to  build  up 
a  spirit  of  cooperation  between  competitors.  Cooperation  in 
business  would  follow  if  a  friendly  feeling  could  be  developed 
between  competitors.  A  feeling  of  friendship  could  best  be  devel- 
oped by  arranging  for  frequent  gatherings.  The  second  thought 
was  that  competitors  should  be  induced  to  exchange  information 
between  each  other,  freely,  and  frankly.  In  the  words  of  Mr. 
Gary,  the  purposes  served  by  the  Gary  dinners  were  "thoroly 
establishing,  if  possible,  a  friendly  feeling  amongst  the  steel 
makers,  and  of  inducing,  if  possible,  the  manufacturers  to  state 
frankly  and  freely  what  they  were  doing,  how  much  business 
they  were  doing,  what  prices  they  were  charging,  how  much 
wages  they  were  paying  their  men,  and  oftentimes  what  their 
methods  were,  and  in  fact  furnishing  frankly  to  the  others  all  in- 
formation concerning  their  business,  to  maintain  as  far  as  practica- 
ble the  stability  of  business  and  to  prevent  by  exhortation  the  wide 
and  sudden  fluctuation  of  prices  which  would  be  injurious  to 
everyone  interested  in  the  business  of  the  iron  and  steel  manu- 
facturers."17 

Mr.  Gary  well  recognized  that  in  order  to  make  effective  his 
ideas  of  building  up,  first,  the  cooperative  spirit;  second,  the 
sentiment  of  mutual  helpfulness  to  be  manifested  in  a  free  and 
frank  exchange  of  information,  it  would  be  necessary  to  do 
more  than  provide  for  an  occasional  dinner.  The  size  of  the 
industry  would  not  permit  of  more  than  the  leaders  of  each  line 
of  trade  being  present  at  these  dinners.  It  was  imperative  that 
each  line  of  product  be  organized  in  such  fashion  as  to  provide 
for  the  frequent  exchange  of  information  and  the  growth  of 
friendly  feeling  among  competitors.18  The  method  devised  was 
to  appoint  a  general  committee  of  five  who  were  clothed  with 
authority  to  select  a  number  of  sub-committees  to  represent  the 

"Gary,  Record,  Vol.  XII,  p.  4889. 

l8See  Robinson,  M.  H.,  Unpublished  Manuscript,  Gary  Dinners,  p.  5. 


199]  IRON  AND  STEEL  INDUSTRY  35 

important  branches  of  the  iron  and  steel  industry.  This  action 
was  voted  at  the  first  Gary  dinner.  The  sub-committees  selected 
represented  the  following  lines  of  products:  ore  and  pig  iron, 
rails  and  billets,  structural  materials,  plates,  steel  bars,  pipes 
and  tubular  goods,  sheets  and  plates,  wire  products.19 

The  general  committee  was  of  value  in  coordinating  the  work 
of  and  stimulating  to  action  the  members  of  the  several  sub- 
committees. The  latter  may  be  regarded  as  the  successors  of 
the  so-called  Statistical  Associations.20  Their  program,  however, 
was  a  larger  one.  They  were  committed  to  the  additional  task, 
first,  of  building  up  an  esprit  de  corps  among  competitors  making 
for  cooperation;  second,  of  broadening  the  sphere  of  cooperative 
activity  in  the  direction  of  a  more  frank,  free  and  comprehensive 
exchange  of  business  information.  The  way  was  rapidly  being 
prepared  for  the  advent  of  the  open  price  stage  of  development. 

Mr.  Gary  not  only  pointed  the  way  by  preaching  coooperation 
and  by  creating  the  organization  by  which  it  might  be  translated 
into  action,  but  as  the  president  of  the  United  States  Steel  Cor- 
poration, he  tremendously  abetted  the  movement  by  practising 
what  he  preached,  as  the  following  will  indicate: 

Q  "Mr.  Smith,  has  the  existence  of  the  United  States  Steel 
Corporation  had  any  effect,  good  or  bad,  upon  your  business?" 
A.  "Before  the  formation  of  the  Steel  Corporation  business  ethics, 
I  might  say,  were  in  very  bad  shape,  competitors  had  no  confi- 
dence in  each  other;  they  resorted  to  subterfuges,  misrepresenta- 
tions, and  false  statements.  The  same  lack  of  confidence  existed 
between  sellers  and  many  purchasing  agents.  It  was  a  very 
undesirable  condition  in  which  to  do  business.  For  the  past 
seven  or  ten  years  —  in  later  times,  at  any  rate  —  all  of  that  mis- 
understanding or  misgiving  has  been  replaced  by  manly,  straight- 
forward dealings." 

Q.  "To  what  extent  do  you  think  the  Steel  Corporation  has 
brought  about  that  change?"  A.  "I  do  not  think  it  could  have 
been  brought  about  without  their  influence  and  example." 

Q.  "Now  what  is  the  difference,  if  any,  in  the  attitude  of  com- 
petitors in  your  line  toward  one  another  from  the  condition  that 


;</.,  pp.  6,  7. 
"Ibid.,  p.  7. 


36  OPEN  PRICE  ASSOCIATIONS  [2OO 

prevailed  say  fifteen  years  ago?"  A.  "We  are  honestly  friends 
now.  Then  we  pretended  to  be  friends,  but  were  the  bitterest 
enemies."21 

Just  what  the  Steel  Corporation  did  to  build  up  this  friendly 
spirit  is  revealed  in  Mr.  Gary's  testimony: 

"We  have  kept  competitors,  employes,  and  customers  well 
informed  in  regard  to  our  general  business  affairs.  Of  course  I 
do  not  mean  to  say  that  we  always  allowed  everyone  to  know 
of  our  negotiations  concerning  contracts  and  things  of  that  kind 
that  might  interfere  with  the  regularity  or  success  of  our  busi- 
ness in  detail,  but  so  far  as  our  policies  and  principles  and  general 
conduct  and  results  and  methods  are  concerned,  we  have  en- 
deavored to  keep  the  public  informed."22 

Altho  Mr.  Gary's  teachings  and  example  had  their  ultimate 
influence,  the  immediate  results  were  not  gratifying.  Very  soon 
after  the  initiation  of  the  Gary  system  it  became  plain  that 
competitors  were  not  willing  to  show  the  same  degree  of  frank- 
ness and  faithfulness  to  Mr.  Gary  in  reporting  changes  in  their 
business  methods,  as  he  was  doing  to  them.  Testifying  on  this 
matter,  Mr.  Gary  said: 

"We  decided  not  to  meet  and  give  others  information  as  to 
exactly  what  we  were  doing,23  what  our  orders  were,  and  where 
they  were,  or  any  information  about  our  business.  Conditions 
had  changed.  This  step  was  forced  upon  the  corporation.  Others 
did  the  same.  *****  \Ve  had  prevented  demoralization;  we 
had,  by  our  business  friendship  and  our  coming  close  together 
and  keeping  one  another  posted,  prevented  the  wide  and  sudden 
fluctuation  which  I  particularly  was  attempting  to  prevent.  But 
there  had  been  changes  from  time  to  time  and  sales  made  below 
the  advertised  prices — what  are  considered  the  trade  paper 
prices — but  nevertheless  I  believed  it  was  good  business  and 
good  morals  to  continue  to  furnish  the  information  which  we 
had  been  furnishing  from  time  to  time  until  we  reached  the 
period  when  it  was  perfectly  evident  that  there  was  a  disposition 
on  the  part  of  everyone  outside  of  ourselves  to  do  just  exactly 

"Smith,  C.  C.,  Record,  Vol.  XX,  pp.  8067-8068. 
"Gary,  Record,  Vol.  XII,  p.  4917. 
"This  happened  early  in  1909. 


2OlJ  IRON  AND  STEEL  INDUSTRY  37 

as  he  pleased;  that  is,  to  publish  one  price  and  sell  at  another, 
to  sell  far  below  the  prices  that  were  supposed  to  exist  without 
notifying  us.  When  competitors  were  making  radical  changes 
in  prices  below  their  published  prices  they  ought  in  fairness  to 
notify  the  rest  and  especially  to  notify  us,  because  we  were 
notifying  them  always.  They  were  not  obligated  to  do  it  except  as 
two  men  who  profess  to  be  friends,  or  professing  to  give  infor- 
mation to  one  another  as  to  what  they  were  doing,  naturally 
ought  to  tell  the  truth  about  it."24 

Mr.  Gary's  announcement  to  his  competitors  that  he  would 
no  longer  cooperate  with  them  caused  the  temporary  abandon- 
ment in  1909  of  all  association  activity.  No  further  meetings 
were  held  and  the  committees  were  disbanded.26 

It  is  well  to  point  out  in  this  connection  that  the  breakdown 
of  Gary's  cooperative  plan  cannot  be  regarded  as  an  augury  of 
the  probable  ultimate  failure  of  the  open  price  plan.  Under  the 
open  price  plan  there  is  no  discussion  of  future  prices,  nor  is  any 
attempt  made  on  the  part  of  members  to  come  to  an  under- 
standing, express  or  tacit,  respecting  the  course  of  future  prices. 
Testimony  taken  in  the  steel  case  makes  it  clear  that  iron  and 
steel  producers  conceived  cooperation  to  be  synonymous  with  a 
united  effort  to  maintain  prices.  In  1908,  Mr.  Bope  wrote  to 
the  directors  of  the  Carnegie  Company  as  follows : 

"One  concern  that  has  been  reported  as  'cooperating'  with  us 
in  the  price  policy  has  been  persistently  and  consistently  doing 
the  other  thing,  taking  business  at  any  kind  of  prices  they  could 
get;  *****  that  in  the  bar  end  of  our  business  we  are 
meeting  competition  today  that  is  just  knocking  everything  in 
the  head.  The  bar  situation  is  the  weakest  feature  of  the  whole 
price  policy."26  Testifying  as  to  what  transpired  at  the  group 
meetings  held  under  the  auspices  of  the  various  sub-committees, 
Mr.  Crawford  said: 

"There  would  be  a  general  understanding  that  we  would  do 
what  we  would  say  we  would  do— quote  a  certain  figure  until 
we  found  reason  to  change  it;  and  if  we  found  reason  to  change 

"Gary,  Record,  Vol.  XII,  p.  4902. 

"Robinson,  M.  H.,  Unpublished  Manuscript,  Gary  Dinner  System,  p.  26. 

"Mr.  Bope  to  the  directors,  Record,  Govt.  Exh.,  Vol.  2,  p.  520. 


38  OPEN  PRICE  ASSOCIATIONS  [2O2 

it  we  would  notify  our  competitors,  or  talk  with  them  about  it, 
when  another  meeting  would  be  held  and  conditions  discussed. 

"A  price  would  always  be  suggested.  The  statement  was 
unanimous  in  every  case  on  the  part  of  all  that  they  would 
quote  a  certain  price.  The  matter  of  price  cutting  would  be 
brought  up  and  discussed  and  that  discussion  would  end  it; 
because  there  was  nothing  to  do  in  case  there  was. 

"We  would  say,  'We  will  quote  a  certain  price  until  we  find 
reason  to  change  it.'  Then  would  leave  with  the  same  under- 
standing that  each  was  going  to  sell  at  that  price.  The  effect 
was  to  keep  a  steady  price.  There  were  some  fluctuations.  The 
understanding  after  these  prices  were  announcd  was  that  there 
was  a  moral  obligation  to  sell  at  that  price  until  competitors 
were  notified."27 

The  Gary  system  failed  at  this  juncture  because  market  con- 
ditions led  to  more  and  more  price  cutting  on  the  part  of  those 
who  felt  obliged  to  disregard  their  "moral  obligations".  It  ceased 
to  operate  when  it  no  longer  was  able  to  control  the  price  situa- 
tion, constituting  proof  sufficient  that  members  understood  it  to 
be  a  plan  for  maintaining  prices  by  joint  effort.  In  contrast  to 
this,  prospective  members  of  open  price  associations  are  made 
to  understand  that  the  open  price  plan  has  no  place  for  agree- 
ments or  understandings  of  any  kind.  They  join  knowing  that 
they  are  expected  to  quote  any  prices  that  they  may  see  fit  to 
quote.  The  open  price  association  is  therefore  not  liable  to  be 
disrupted  because  of  broken  price  understandings,  for  such 
agreements  not  only  do  not  exist  but  are  positively  discoun- 
tenanced.28 

Beginning  in  the  latter  part  of  1909,  Mr.  Gary  thought  the 
time  ripe  to  attempt  a  resumption  of  his  cooperative  activities. 
The  newly  organized  Iron  and  Steel  Institute,  modelled  on  the 
lines  of  the  British  Iron  and  Steel  Institute,  became  the  new  cen- 
ter of  operations.  Plans  were  going  forward  looking  toward  the 
effective  organization  of  the  industry  on  "cooperative  lines"  when 
in  1911  the  Government  launched  its  attack  upon  the  United 

"Crawford,  Record,  Vol.  XV,  p.  1777. 

^Constitution,  Society  of  Manufacturing  Confectioners  and  other  constitutions 
of  open  price  associations;  also  Eddy,  New  Competition,  pp.  122, 124. 


203]  IRON  AND  STEEL  INDUSTRY  39 

States  Steel  Corporation.  In  view  of  this  circumstance  it  was 
deemed  best  to  discontinue  the  cooperative  movement.29 

This  stage  of  association  activity,  however,  was  promptly 
succeeded  by  the  open  price  system.  Mr.  Eddy,  having  made 
a  specialty  of  the  study  of  law  as  it  pertained  to  the  various 
forms  of  combination,  became  a  close  student  of  the  methods 
pursued  by  Mr.  Gary  in  the  iron  and  steel  industry.30  He  was 
quick  to  see  the  merits  of  cooperation  as  preached  by  Mr.  Gary 
provided  it  could  be  directed  in  such  a  way  as  to  result  in  no 
violation  of  the  law.  In  studying  this  aspect  of  the  situation  he 
conceived  the  idea  that  there  could  be  nothing  illegal  in  permit- 
ting competitors  to  exchange  information  dealing  with  past  trans- 
actions. His  observation  of  the  workings  of  the  Gary  system 
convinced  him  that  understandings  in  violation  of  law  inevitably 
followed  upon  the  heels  of  discussions  devoted  to  a  consideration 
of  future  prices,  but  discussions  of  prices  that  were  already  being 
charged  or  quoted  could  never  be  construed  in  the  nature  of 
understandings  in  contravention  of  the  law,  he  thought.31  Around 
this  idea  as  a  pivotal  point  he  built  up  the  system  known  as  the 
open  price  plan.  The  principal  elements  of  the  plan,  a  reporting 
system,  an  open,  free,  and  frank  exchange  of  information  be- 
tween competitors  and  an  appreciation  of  the  worth  of  friendli- 
ness between  competitors  already  lay  at  his  hand,  contributed, 
as  they  had  been,  by  systems  of  associated  activity  that  had 
gone  before.  It  remained  for  Mr.  Eddy  to  knit  them  together, 
weaving  into  the  fabric  this  new  strand  of  thought  of  his, 
namely,  that  the  exchange  of  information  must  be  limited  to 
transactions  that  are  of  the  past.82 

An  examination  of  the  list  of  associations  reputed  to  be  doing 
open  price  work  found  in  the  appendix  leads  one  to  feel  justified 
in  making  the  assumption  that  an  open  price  association  is  now 
in  existence  in  almost  every  line  of  product  formerly  controlled 

"Robinson,  M.  H.,  Unpublished  Manuscript,  Gary  Dinner  System,  p.  41. 

*°See  Eddy,  A.  J.,  The  Law  of  Combinations,  Chicago,  1901. 

MEddy,  New  Competition,  p.  119.  Mr.  Eddy  quotes  from  bill  filed  in  case  of 
U.  S.  vs.  U.  S.  Steel  Corporation  as  follows:  "  'It  is  not  here  alleged  that  merely 
assembling  and  mutually  exchanging  information  and  declaration  of  purpose 
amount  to  an  agreement  or  a  combination  in  restraint  of  trade.'  "  See  also  p.  121. 

MSee  ch.  8  for  legal  discussion. 


4O  OPEN  PRICE  ASSOCIATIONS  [204 

by  the  sub-committees  in  operation  under  the  Gary  system.  If 
this  be  true,  it  is  a  development  of  some  significance.  Of  course 
the  fact  that  the  subsidiary  companies  of  the  United  States  Steel 
Corporation  are  not  members  of  any  of  the  open  price  associa- 
tions detracts  from  the  importance  of  the  movement.  However, 
the  methods  and  operations  of  the  Steel  Corporation  have  always 
been  more  or  less  open,  so  that  the  independents,  all  of  whom 
are  members  of  open  price  associations,  can  probably  reduce  the 
operations  of  the  Steel  Corporation  to  a  calculable  basis,  thereby 
offsetting,  somewhat,  the  handicap  of  having  a  corporation  as 
large  as  this  outside  the  ranks  of  membership. 

The  American  Iron  and  Steel  Institute  has  continued  to  be 
the  central  organ  of  the  industry.  Under  its  auspices  two  gen- 
eral meetings  are  held  each  year,  at  which  technical  papers  are 
read  and  discussed.  The  institute  also  collects  the  statistics  of 
tonnage  production  of  pig  iron,  steel  ingots,  finished  rolled  iron 
and  steel  products,  et  cetera.  No  statistics  of  prices  are  gath- 
ered. From  time  to  time  the  Institute  publishes  a  book  known 
as  the  Directory  of  Iron  and  Steel  Works  of  the  United  States 
and  Canada,  describing  the  various  iron  and  steel  companies 
and  their  plants.33 

Those  who  have  studied  the  association  movement  among  iron 
and  steel  producers  naturally  wonder  how  successfully  they  are 
adhering  to  those  principles  of  the  open  price  system  which 
dictate  that  competitive  methods  are  to  be  free  and  open,  un- 
tramelled  by  associated  action.  Having  learned  that  the  price 
fixing  virus  has  been  inoculated  in  years  gone  by,  it  is  manifestly 
of  interest  to  know  how  the  open  price  plan  is  managing  to  combat 
the  effects  of  this  virus.  The  movement  is  too  much  in  its  infancy 
to  permit  of  any  expression  in  elucidation  of  this  point.  Natu- 
rally, too,  this  is  a  matter  on  which  it  is  very  difficult  to  obtain 
data. 


"Letter  from  H.  H.  Cook,  American  Iron  and  Steel  Institute,  Jan.  17,  1921. 


CHAPTER   III 

THE  EDDY  THEORY  AND  PLAN  OF  NEW 
COMPETITION 

Very  little  theory  has  been  developed  in  support  of  the  open 
price  plan.  Three  of  the  most  fundamental  concepts  associated 
with  the  plan,  namely,  first,  publicity  in  the  transaction  of  busi- 
ness; second,  interchange  of  business  information  among  com- 
petitors, and  third,  the  development  of  a  spirit  of  confidence 
and  trust  between  sellers  themselves  and  between  sellers  and 
buyers,  were  being  put  into  practise  by  Mr.  Gary  in  the  iron 
and  steel  industry  several  years  before  Mr.  Eddy  published  any- 
thing on  the  subject.  However,  Mr.  Gary,  as  far  as  is  known, 
has  contributed  no  theories  pertaining  to  the  plan. 

Only  Mr.  Eddy  appears  to  have  contributed  anything  in  the 
way  of  theory.  Such  addresses  or  articles  as  others  have  pub- 
lished are  practically  without  exception  a  rehash  of  the  ideas  pre- 
sented by  Mr.  Eddy.  But  even  the  work  of  Mr.  Eddy  scarcely 
deserves  to  be  designated  as  a  theoretical  contribution.1  The 
purpose  of  his  book,  apparently,  has  been  to  win  converts  to  his 
plan,  by  presenting  the  plan  in  a  popular  way,  calculated  to 
catch  the  eye  of  the  ordinary  business  man. 

Naturally,  before  plunging  into  an  exposition  of  his  theory, 
he  undertakes  to  denounce  the  kind  of  competition  now  extant.2 
This  competition,  the  "old  competition",  as  he  calls  it,  is  fierce, 
brutal,  ruthless,  destructive,  and  wasteful.  It  is  the  law  of  the 
survival  of  the  strongest  applied  to  the  commercial  and  indus- 
trial relationships  of  man,  a  law  by  which  the  stronger,  by  fair 
means  or  foul,  overcome  the  weaker  in  commercial  combat.  He 
decries  the  existence  of  a  competition  which  seems  only  to  foster 
the  feeling  among  business  men  that  in  order  to  be  successful 

^ddy,  A.  J.,  New  Competition ,  N.  Y.,  1912.  Mr.  Eddy  was  a  practising  at- 
torney. 

.,  pp.  1-37- 

41 


42  OPEN  PRICE  ASSOCIATIONS  [206 

they  must  ruin  their  competitors.  Fitness  does  not  seem  to 
insure  survival.  To  take  just  one  example,  many  a  contractor 
who  is  rendering  satisfactory  service  finds  himself  bidding 
against  others  of  his  class  for  the  custom  of  a  single  person  or 
group  of  persons  acting  as  a  unit.  Ignorant  of  the  terms  being 
made  by  competitors,  it  becomes  easy  for  the  individual  or 
group  whose  custom  is  being  bid  for  to  play  one  off  against  the 
other  by  misrepresenting  to  each  in  turn  the  terms  which  have 
been  made  by  others.  The  result  is  that  bids  are  often  made 
which  do  not  cover  costs.  Inevitably  men  are  forced  out  of 
business  whose  services  society  needs.  They  are  often  the  very 
ones  who  are  the  most  valuable  to  society  because  of  their 
.  honesty  in  business  practises.  The  more  unscrupulous  competi- 
tors succeed  in  surviving  by  resorting  to  poor  workmanship, 
adulteration,  and  skimping  on  specifications. 

One  of  the  worst  by-products  of  the  old  competition,  according 
to  Eddy,  is  the  secrecy  existing  between  each  competitor.  Igno- 
rant of  what  his  competitors  are  doing,  Tie  bids  against  his  "own 
fears  and  necessities."3  The  result  of  this  state  of  secrecy  to- 
gether with  the  state  of  industrial  warfare  that  is  associated  with 
it  is  to  fill  the  world  with  suspicion.  Labor  distrusts  capital; 
the  distributer  distrusts  the  producer,  the  producers  distrust  each 
other,  and  the  consumer  distrusts  them  all. 

It  is  not  necessary  to  do  more  than  call  attention  to  the  line 
of  thought  that  Mr.  Eddy  has  here  pursued.  For  a  long  time 
economists  have  been  cognizant  of  the  fact  that  the  competition 
that  they  have  regarded  as  ideal,  characterized  by  an  open  mar- 
ket, with  numerous  buyers  and  numerous  sellers,  each  conscious 
of  the  bids  and  offers  of  the  others,  is  not  the  kind  of  competition 
that  is  actually  faced  by  the  business  man.4 

When  the  business  man  has  attempted  to  avoid  the  disastrous 
consequences  of  actual  competitive  conditions  by  means  of  com- 
binations, consolidations,  and  association  activities,  the  jurists 
and  legislators  have  felt  it  incumbent  upon  them  to  force  them 
back  into  the  old  conditions.  This  is  a  case  of  outright  dis- 

3Eddy,  New  Competition,  p.  92. 

4Johnson,  A.  S.,"Review of  New  Competition", Pol.  Sc.  Quar.,Mar.  1913,?.  14*. 


2O/]  THE  EDDY  THEORY  AND  PLAN  43 

crimination  against  the  business  man,  contends  Mr.  Eddy.  He 
points  out  that  farmers'  organizations  to  control  the  production 
and  marketing  of  their  products  are  countenanced  by  the  courts, 
as  are  labor  unions,  which  exist  chiefly  to  control  wages.5 

"The  country  has  reached  the  parting  of  the  ways,"  he  goes 
on  to  say.  "It  must  make  its  choice,  and  make  it  intelligently — 
either  the  competitive  or  cooperative  basis.  If  the  competitive, 
then  no  class  should  be  permitted  to  organize  a  cooperative 
movement  to  get  more  for  what  it  has  to  sell;  if  the  cooperative 
basis,  then  no  class  should  be  prevented  from  organizing — either 
one  policy  or  the  other;  the  two  cannot  exist  together.  The  man 
who  argues  for  competition  must  be  consistent;  he  must  argue 
against  farmers'  cooperative  societies  and  labor  unions  just  as 
vehemently  as  he  argues  against  combinations  of  dealers  and 
manufacturers."6 

After  thus  pointing  out  that  "the  old  order  must  give  place 
to  the  new"  and  that  judicial  opinion  and  public  sentiment  is 
beginning  to  show  signs  of  a  more  tolerant  spirit  toward  cooper- 
ative efforts  among  business  men,  Mr.  Eddy  is  ready  to  launch 
into  an  exposition  of  what  he  terms  the  "true  competition",  or 
the  "new  competition",  which  he  predicts  will  very  soon  supplant 
the  old  competition.  "True  competition,"  expressed  in  his  words, 
"exists  only  where  there  are  two  or  more  competitors  competing 
under  conditions  that  enable  each  to  know  and  fairly  judge  what 
the  others  are  doing.  The  essence  of  competition  lies  in  the 
element  of  knowledge;  it  is  real,  true,  and  beneficial  in  proportion 
to  its  openness  and  frankness,  its  freedom  from  secrecy  and 
underhand  methods."7 

This  constitutes  a  statement  of  his  theory.  In  substance  the 
only  amplification  that  he  makes  of  this  statement  is  to  point  out 
what  he  thinks  will  be  the  important  effects  of  competition  car- 
ried on  under  open  conditions,  all  competitors  being  possessed 
of  full  knowledge.  In  the  first  place,  prices  will  be  stabilized, 
he  thinks,  and  his  main  reason  for  thinking  so,  apparently,  is 
that  every  competitor  will  "refrain  instinctively  from  cutting 

5Eddy,  New  Competition,  see  ch.  19. 

•7JW.,  p.  35. 

7Eddy,  New  Competition,  p.  82. 


44  OPEN  PRICE  ASSOCIATIONS  [208 

because  he  knows  if  one  cuts  all  will",  in  as  much  as  "the  indus- 
try has  probably  been  through  more  than  one  disastrous  trade 
war  and  is  ever  on  the  verge  of  another."8  In  the  second  place, 
the  absence  of  secrecy  will  eliminate  the  evils  attending  the  old 
competitive  regime.  Distrust  that  pervades  every  class  from 
producers  to  consumers  will  give  way  to  friendliness  and  trust. 
Since  dealings  are  no  longer  in  secret,  they  will  not  be  attended 
by  fraud  and  misrepresentation.9 

Mr.  Eddy  thus  states  what  he  deems  will  be  the  main  effects 
of  his  theory,  but  he  does  not  explain  why  "true  competition 
exists  only  where  there  are  two  or  more  competitors  competing 
under  conditions  that  enable  each  to  know  and  fairly  judge  what 
the  others  are  doing."  Knowledge  is  the  essence  of  competition, 
he  declares,  but  he  gives  no  reasons  for  so  thinking.  After  mak- 
ing the  statement  of  his  theory  he  immediately  proceeds,  as  has 
been  noted,  to  consider  the  probable  effects  resulting  from  the 
acceptance  and  application  of  the  theory.  This  being  accom- 
plished, he  is  ready  to  suggest  plans  for  putting  this  theory  into 
practise. 

Before  turning  to  a  consideration  of  these  plans,  it  may  be  in 
order  to  assert  that  in  the  opinion  of  the  writer  the  statement  of 
theory  as  made  by  Mr.  Eddy  contains  in  itself  nothing  essentially 
new  to  the  science  of  economics.  Economists  have  long  recog- 
nized that  innumerable  elements  of  friction  are  ever  present  under 
actual  competitive  conditions  to  prevent  the  law  of  supply  and 
demand  from  functioning  as  it  would  if  they  were  not  present. 
Ignorance  has  been  recognized  as  one  of  the  deterrents  to  an 
approach  to  a  condition  of  free  competition.10  In  fact,  econo- 
mists, in  formulating  the  law  of  supply  and  demand  which  lies 
at  the  basis  of  commercial  competition,  have  made  the  explicit 
reservation  that  the  law  only  holds  if  it  is  assumed  that  all  par- 
ties are  intelligent  enough  to  know  their  own  interest,  and  are 
able  and  willing  to  act  thereon.11  Obviously  they  will  not  know 

tll>id.,p.  101.    Foradiscussionoftheeffectofopenpriceactivityonpricessee  ch.p. 

'For  a  discussion  of  the  advantages  of  the  open  price  plan  see  ch.  6. 

10In  every  case  where  the  term  "competition"  is  used,  the  meaning  is  "commer- 
cial competition."  See  Taussig,  F.  W.,  Principles  of  Economics,  Vol.  I,  p.  149. 

"See  Palgrave,  Dictionary  of  Political  Economy  on  "Competition,"  Vol.  I,  pp. 
376-380. 


209]  THE  EDDY  THEORY  AND  PLAN  45 

their  own  interest  if  they  are  not  acquainted  with  all  the  condi- 
tions affecting  the  supply  of  and  the  demand  for  the  particular 
product  in  which  interest  is  centered.  Ignorance  of  business 
conditions  is  admittedly  so  prevalent  among  business  men  of 
the  ordinary  type  as  to  render  them  incapable  of  acting  intelli- 
gently in  their  own  interest. 

Perhaps  the  reason  why  knowledge  is  the  essence  of  compe- 
tition may  be  made  clear  by  the  following:  A  knowledge  on 
the  part  of  sellers  and  buyers  of  their  own  interest,  implying,  as 
it  does,  a  knowledge  of  all  conditions  that  might  have  a  bearing 
on  the  supply  of,  and  the  demand  for,  a  given  commodity,  to- 
gether with  the  ability  and  willingness  to  intelligently  act  thereon, 
would  result,  according  to  the  law  of  supply  and  demand,  in 
similar  exchanges  taking  place  on  similar  terms,  or  to  state  it 
in  terms  of  price,  it  would  result  in  the  naming  of  an  equilibrium 
price  "for  the  same  unit  of  the  same  quality  of  the  same  article 
in  the  same  market."12  This  stability  of  market  conditions, 
which  finds  expression  in  a  single  price,  will  ensue  only  under 
the  conditions  named.  It  is  attainable  only  in  theory.  But  such 
stability  can  be  approximated  by  means  of  systematic  efforts 
put  forth  to  eradicate  sources  of  friction.  Undoubtedly  one  of 
the  most  serious  sources  of  friction  is  due  to  sellers  and  buyers 
lacking  adequate  knowledge. 

The  nearest  approximation  in  real  life  to  a  stability  of  condi- 
tions such  as  is  attainable  theoretically  seems  to  have  been 
achieved  in  the  case  of  those  commodities  which  have  their  mar- 
ket made  on  the  exchanges.  The  reason  undoubtedly  is  that  the 
machinery  of  these  exchanges,  be  they  stock,  bond,  wheat,  coffee, 
cotton,  or  any  other  kind  of  exchanges,  puts  at  the  disposal  of 
buyers  and  sellers  an  unusual  amount  of  information  bearing  on 
competitive  conditions.  The  higgling  between  buyers  and  sellers, 
based  as  it  is,  on  a  general  knowledge  of  substantially  all  facts  that 
have  a  bearing  on  competitive  conditions,  results  in  prices  being 
named  which  vary  very  little  from  each  other  for  given  units 
of  a  given  commodity  of  a  given  quality  on  a  given  exchange 
at  a  given  moment  of  time.  One  only  has  to  note  the  general 

"Palgrave,  Dictionary  of  Political  Economy  on  "Competition"  Vol.  I,  pp.  376- 
380. 


46  OPEN  PRICE  ASSOCIATIONS  [2IO 

confusion  among  buyers  and  sellers,  manifesting  itself  in  wide 
"spreads"  of  prices,  that  occurs  in  consequence  of  a  temporary 
cessation  of  this  exchange  machinery  to  know  the  importance  of 
putting  buyers  and  sellers  in  a  position  where  they  can  know 
all  the  facts  of  competition  as  well  as  act  thereon.13 

It  is  a  matter  of  common  observation  that  there  is  considerable 
variation  in  the  prices  named  for  identical  commodities  in  those 
cases  where  they  do  not  have  their  market  made  on  an  exchange. 
This  is  particularly  true  of  the  great  class  of  manufactured  goods. 
It  is  a  fair  assumption  that  the  "spread"  in  prices  apparent  in 
many,  if  not  most,  lines  of  manufactured  commodities  is  to  a 
considerable  degree  the  result  of  buyers  and  sellers  possessing 
an  inadequate  knowledge  of  market  conditions.  Of  course  con- 
ditions may  arise  which  would  result  in  similar  commodities 
selling  at  different  prices  even  tho  sellers  and  buyers  are 
thoroly  acquainted  with  all  essential  facts  pertaining  to  mar- 
ket conditions.  This  cannot  be  denied;  but  the  contention  is 
that,  other  things  being  equal,  there  will  be  less  of  a  "spread" 
in  prices — meaning,  of  course,  that  ideal  conditions  of  competi- 
tion are  more  nearly  approximated — when  buyers  and  sellers  are 
well  informed  than  when  they  are  not. 

If  this  country  is  to  continue  to  shape  its  destiny  in  a  business 
way  in  accordance  with  the  theory  that  the  ideal  philosophy 
of  trade  is  competition  in  trade,  it  becomes  important  that  means 
be  sought  looking  toward  a  more  free  play  of  competitive  forces. 
Perhaps  the  time  will  come  when  the  theory  of  competition  as 
laid  down  by  the  economist,  now  so  maligned  in  many  quarters, 
will  find  itself  vindicated,  provided  means  can  be  found  for 
eliminating  the  more  serious  causes  of  friction  that  now  prevent 
actual  competitive  conditions  from  approaching  ideal  competitive 
conditions.  Undoubtedly  a  very  serious  amount  of  friction  is 
occasioned  by  the  lack  of  machinery  for  putting  business  men 
in  possession  of  the  salient  facts  relating  to  their  particular  lines 
of  industry. 

\  "At  the  outset  of  the  war,  when  the  New  York  Stock  Exchange  was  temp- 

*         orarily  closed,  the  very  best  of  securities  fluctuated  violently  in  price.     As  soon 

as    the    Stock    Exchange    opened    these    violent   fluctuations    disappeared,    and 

"spreads"  in  prices  became  less  pronounced. 


2 1 1  ]  THE  EDDY  THEORY  AND  PLAN  47 

Mr.  Eddy,  in  the  opinion  of  the  writer,  should  be  credited 
with  an  achievement  of  signal  worth  in  calling  the  attention  of 
business  men  to  the  fact  that  there  are  ways  of  providing  ma- 
chinery that  will  enable  them  systematically  to  get  at  the  infor- 
mation of  inestimable  value  to  them  in  diagnosing  market 
conditions.  However,  he  should  not  also  be  credited  with  devel- 
oping a  new  theory  of  competition.  The  discovery  that  know- 
ledge is  the  essence  of  competition  is,  as  previously  stated,  not  a 
new  one.  Mr.  Eddy,  however,  apparently  thinks  that  he  has  found 
a  new  theory  of  competition,  when,  as  a  matter  of  fact,  econo- 
mists have  always  assumed  the  existence  of  the  very  thing  that 
Mr.  Eddy  would  raise  to  the  dignity  of  a  new  theory,  namely,  that 
sellers  and  buyers  possess  enough  knowledge  of  the  facts  influ- 
encing competitive  conditions  to  make  them  alive  to  their  own 
interest  in  their  capacity  of  bargainers. 

We  turn  now  to  consider  briefly  the  general  nature  of  the  plans 
that  Mr.  Eddy  would  set  up  as  models  for  those  who  would  learn 
how  to  achieve  true  competition.   From  the  standpoint  of  theory, 
at  least,  irrespective  of  the  practical  difficulties  that  might  arise, 
it  would  seem  essential  that  any  system  devised  for  the  purpose 
of  securing  more  intelligence  in  competition  should  be  sufficiently 
comprehensive  to  take  in  buyers  as  well  as  sellers.   It  is  assumed 
that  in  the  ideal  kind  of  competition,  all  parties  are  sufficiently 
intelligent  to  know  their  own  interests.    However,  if  one  class  is  > 
in  possession  of  all  the  salient  facts  of  competition  and  the  other  , 
is  not,  it  is  safe  to  assume  that  the  one  will  have  an  undue  advan-  < 
tage  over  the  other  in  bargaining.    In  other  words,  true  competi- 
tion will  not  prevail. 

In  the  statement  of  his  theory  Mr.  Eddy  seems  to  have  the 
seller  primarily  in  mind.  He  says  that  "true  competition  exists 
only  where  there  are  two  or  more  competitors1*  competing  under 
conditions  that  enable  each  to  know  and  fairly  judge  what  the 
others  are  doing.15  To  have  true  competition,  it  is  necessary  that 
not  only  sellers  be  informed,  but  that  also  buyers  be  informed. 

"This  term  may  be  applied  to  purchasers  who  are  competing  against  each  other 
in  making  purchases  of  goods,  but  Mr.  Eddy  undoubtedly  uses  the  term  in  its 
more  commonly  accepted  meaning  of  denoting  sellers  in  competition  with  each 
other  for  the  custom  of  the  buyer. 

"Eddy,  New  Competition,  p.  82. 


48  OPEN  PRICE  ASSOCIATIONS  [212 

To  be  sure,  Mr.  Eddy  does  make  reference  to  one  plan  in 
which  connection  the  "goal  to  be  kept  in  mind  is  a  Central 
Exchange,  so  open,  so  public,  that  labor,  employers,  customers 
will  resort  to  it  for  information  regarding  work,  wages,  prices, 
and  all  conditions  affecting  every  trade  and  industry  repre- 
sented." Under  this  plan,  apparently,  every  town  is  to  have  its 
Industrial  Exchange,  a  place  of  meeting  for  all  trades,  and  every 
contractor  in  all  lines  of  work  is  to  be  a  member.  The  exchange 
that  Mr.  Eddy  here  has  in  mind  is  apparently  to  be  mainly  for 
the  use  of  those  who  are  engaged  in  the  various  building  and 
allied  trades.  Nothing  is  said  as  to  the  place  that  buyers  and 
sellers  of  manufactured  goods  are  to  occupy  in  these  exchanges. 
Apparently  Mr.  Eddy  has  little  faith  in  the  practicability  of  this 
plan  for  it  is  given  only  a  passing  reference  in  a  passage  leading 
up  to  the  real  plan  that  he  has  in  mind.16 

This  plan  which  has  come  to  be  known  as  the  open  price  plan17 
is  devised  almost  entirely  from  the  point  of  view  of  the  seller. 
In  fact  one  of  the  principal  inducements  for  trying  out  the  plan, 
as  Mr.  Eddy  states,  is  to  prevent  buyers  from  misrepresenting 
prices  that  are  being  currently  quoted.18  He  also  suggests  that 
the  plan  will  put  purchaser  and  seller  more  nearly  "on  a  footing 
of  equality."19  An  outline  of  the  steps  that  should  be  taken  by 
the  manufacturer  in  organizing  an  open  price  association  is 
..given.20  The  purchaser  has  no  part  to  play  in  the  organization. 
Purchasers  are  to  be  permitted  to  attend  meetings,  but  nothing 
is  said  about  permitting  them  to  have  a  part  in  the  reporting 
system.  The  suggestion  is  made  that  purchasers  organize  their 
own  open  price  associations,  but  obviously  the  trade  statistics 
that  they  could  obtain  for  themselves  would  be  very  limited 
in  scope.  They  could  compare  prices  paid  for  purchases,  but 
they  could  not  obtain  statistics  pertaining  to  such  vital  matters 
as  amount  and  character  of  production,  size,  character,  and  loca- 
tion of  stocks  of  commodities,  et  cetera.  These  statistics  could 

"Eddy,  New  Competition,  pp.  101-104. 

17For  a  description  of  the  typical  Eddy  plan,  see  ch.  5,  pp.  71-72. 

18Eddy,  New  Competition,  p.  145. 

"ItiJ.,  p.  145- 

KIbid.,  pp.  124-136. 


2I3J  THE  EDDY  THEORY  AND  PLAN  49 

be  obtained  only  from  the  producers  themselves.  It  is  plain  that 
the  machinery  of  the  open  price  plan  does  not  put  all  the  facts 
of  competition  before  both  the  buyer  and  the  seller  in  the  impartial 
way  in  which  it  is  done,  for  example,  on  the  various  commodity 
exchanges.  As  long  as  all  parties  concerned  are  not  in  possession 
of  all  the  facts  relating  to  the  competitive  market,  exchanges 
cannot  be  made  on  the  terms  contemplated  by  the  law  of  free 
competition. 

Mr.  Eddy's  plan,  then,  failing  as  it  does,  to  provide  a  system 
whereby  both  buyers  and  sellers  may  be  put  in  possession  of  all 
necessary  information  to  make  them  intelligent  bargainers,  cannot 
be  regarded  as  a  complete  solution  to  the  problem  of  securing 
full  and  free  competition  in  the  transaction  of  business.  The 
plan  is  meritorious,  however,  in  so  far  as  it  points  to  the  direc- 
tion, perhaps,  in  which  may  be  found  a  solution.  Mr.  Eddy  was 
above  all  things  a  practical  minded  man,  intent  on  proposing  a 
practical  plan  which  might  give  redress  to  the  manufacturer  who, 
he  undoubtedly  felt,  was  not  on  an  equal  footing  with  the  pur- 
chaser in  bargaining  power.  However,  he  leaves  the  impression 
with  the  reader  that  his  plan  will  achieve  a  larger  result  than 
merely  to  give  redress  to  one  industrial  class.  It  is  heralded  as 
a  plan  which  will  lead  to  true  competition. 


CHAPTER   IV 

STRUCTURAL  FEATURES  OF  THE  OPEN  PRICE 
ASSOCIATION 

ORGANIC  ORIGIN 

With  very  few  exceptions  the  prevalent  type  of  open  price 
association  is  the  voluntary  association  type.  The  incorporated 
type  has  been  observed  to  exist  among  a  few  of  the  lumber 
manufacturers'  associations.1  Only  one  of  these,  namely,  the 
Southern  Pine  Association,  was  organized  to  do  open  price  work; 
the  others  have  made  it  an  adjunct  of  their  other  activities. 

The  Southern  Pine  Association,  in  adopting  the  form  of  asso- 
ciation that  it  did,  was  actuated  chiefly  by  legal  motives.  Even 
tho  it  has  ceased  to  function  as  an  open  price  association,  it 
is  interesting  to  recount  the  circumstances  attending  the  organi- 
zation of  this  association,2  because  here  is  recorded  one  of  the 
first  attempts  made  to  avoid  the  alleged  weaknesses  of  the  vol- 
untary form  of  association.  It  was  in  1914  that  this  association 
came  into  existence  as  a  result  of  the  reorganization  of  the  old 
Yellow  Pine  Association,  the  latter  having  been  dissolved  and 
many  members  heavily  fined  by  decree  of  the  Supreme  Court 
of  Missouri  in  consequence  of  a  conspiracy  to  boost  prices.3  The 
old  association  had  been  a  voluntary  one.  Its  disastrous  experi- 
ence with  the  courts  made  it  clear  that  under  this  form  of  asso- 
ciation any  member  might  be  held  bound  by  the  acts  or  comments, 
public  or  private,  of  every  other  member.  Under  such  circum- 
stances as  these  there  would  not  be  much  inducement  for  yellow 
pine  manufacturers  to  again  join  hands  as  members  of  a  volun- 
tary association.  Neither  was  it  likely  that  state  authorities, 

Southern  Pine  Assn.;  West  Coast  Lumbermens'  Assn.;  California  White  & 
Sugar  Pine  Manufacturers'  Assn. 

2Price  reporting  was  abandoned  when  suit  was  brought  against  the  American 
Hardwood  Manufacturers'  Assn. 

*  American  Lumberman,  Dec.  20,  1913. 

50 


215]  STRUCTURAL  FEATURES  51 

particularly  those  of  Missouri,  would  view  with  any  degree  of 
equanimity  any  efforts  that  might  be  made  to  resuscitate  the  old 
form  of  organization.  Faced  as  they  were  by  this  two-horned 
dilemma,  the  leaders  among  the  yellow  pine  manufacturers  hit 
upon  the  corporate  form  of  organization  as  a  welcome  solution 
to  their  problem.  Under  the  corporate  form  there  would  be  no 
members  from  the  legal  point  of  view.  A  corporation  would  be 
organized  to  sell  information  to  subscribers  in  a  manner  similar 
to  that  done  by  Bradstreet's  or  Dun's.  Instead  of  having  mem- 
bers, it  would  have  subscribers  who  would  enter  into  a  contract 
with  the  corporation  for  such  service  as  the  corporation  might 
be  authorized  under  its  charter  and  by-laws  to  furnish.  Meetings 
of  subscribers  would  be  held  at  various  times  and  places  to  make 
recommendations  to  the  directors,  who  would  act  upon  them  only 
if  the  action  recommended  came  within  the  law.  The  subscrib- 
ers' meetings  would  be  in  effect  voluntary  organizations,  whose 
will  and  wishes  the  corporate  directors  would  follow  so  far  as  the 
law  permitted.4 

It  was  contended  by  counsel,5  as  previously  intimated,  that  the 
act  of  one  subscriber  would  not  bind  any  other  subscriber. 
Neither  would  any  act  of  the  corporation — the  association  itself — 
bind  the  subscriber.  Furthermore  the  legality  of  the  plan,  it  was 
contended,  would  be  tested  in  advance.  After  filing  the  articles 
of  incorporation  with  the  Secretary  of  State,  they  would  be 
brought  to  the  notice  of  the  Attorney  General  in  order  that  he 
might  advise  against  their  certification  if  he  found  them  in  con- 
flict with  the  law.  One  other  leading  argument  in  favor  of  the 
corporate  form  had  to  do  with  the  placing  of  responsibility  with 
those  who  subscribed.  Under  the  voluntary  form  there  were,  it 
was  contended,  no  adequate  means  of  getting  members  to  live 
up  to  their  obligations.  Under  the  corporate  form,  however, 
subscribers  would  sign  contracts  which  would  be  legal,  binding, 
and  enforceable.  There  could  be  no  voluntary  withdrawal,  the 
contract  running  its  full  term  to  the  date  of  expiration,  during 
which  time  the  subscriber  would  be  bound,  legally  as  well  as 

4C/.,  American  Lumberman,  Dec.  12,  1914. 

^Argument  of  Judge  Lucas  before  meeting  of  Yellow  Pine  manufacturers.  See 
American  Lumberman,  Dec.  12,  1914. 


52  OPEN  PRICE  ASSOCIATIONS  [2l6 

morally,  to  all  obligations  assumed  by  him  therein.  Among  other 
things,  promptness  in  reporting  necessary  business  information 
would  be  insured,  as  would  the  necessary  financial  support  needed 
to  carry  out  the  purposes  of  the  corporation. 

These  arguments  are  passed  on  to  the  reader  for  what  they  are 
worth.  They  involve  primarily  questions  of  law  which  in  time 
will  be  passed  upon  by  the  courts.  Undoubtedly  one  of  the  se- 
rious weaknesses  of  the  voluntary  type  is  the  lax  manner  in 
which  members  carry  their  responsibilities.  The  infliction  of 
penalties  for  infractions  of  rules,  such  as  is  provided  for  by  the 
corporate  form  of  association,  is  a  business  like  way  of  coping 
with  this  difficulty,  say  the  advocates  of  this  plan.6  Advocates 
of  the  voluntary  type,  however,  maintain  that  the  infliction  of 
penalties  is  out  of  harmony  with  the  very  purpose  of  the  open 
price  association,  in  that  it  tends  to  tear  down  the  very  thing 
that  the  open  price  plan  aims  to  build  up,  namely,  a  mutual 
spirit  of  friendliness,  confidence,  and  trust  between  members. 

The  infliction  of  penalties  is  at  best  a  crude  means  of  securing 
a  minimum  degree  of  cooperation  from  those  who  in  the  absence 
of  this  provision  would  perhaps  disregard  their  obligations  en- 
tirely. Possibly  a  stage  of  ethical  development  among  business 
men  has  not  yet  been  reached  which  will  permit  of  their  relations 
with  one  another  being  left  entirely  to  the  field  of  honor.  Prac- 
tically all  of  the  voluntary  type  of  open  price  associations  have 
found  it  necessary  to  compromise  with  their  principles  to  the 
extent  of  inflicting  a  penalty  of  a  kind,  at  least,  upon  members 
who  fail  to  furnish  the  information  called  for  by  the  secretary. 
The  simple  rule  adopted  is  that  those  who  do  not  contribute  infor- 
mation shall  not  be  entitled  to  receive  any.7 

The  writer  is  inclined  to  the  point  of  view  that  the  "loose" 
form  of  association  characteristic  of  the  Eddy  type  is  the  prefer- 
able kind.  It  is  characteristic  of  human  nature  to  rebel  against 

•The  Armstrong  Bureau  of  Related  Industries,  Chicago,  Illinois,  is  organized  as 
a  corporation  to  do  open  price  work  for  manufacturers  who  become  subscribers. 
In  this  case  a  bond  deposit  is  required  as  a  guarantee  of  faithful  performance  of 
all  terms.  For  an  explanation  of  this  system  see  Montague  Ferry,  Intelligent 
Selfishness,  Chicago,  1919,  ch.  6. 

Tor  a  further  discussion  of  the  weaknesses  of  open  price  associations  see  ch.  6. 


217]  STRUCTURAL  FEATURES  53 

restriction  or  restraint.  The  imposition  of  prohibitions  usually 
generates  a  desire  to  circumvent  them. 

With  respect  to  the  relative  immunity  of  the  two  types  from 
visitations  of  the  law,  perhaps  the  only  safe  statement  that  a 
layman  can  make  is  that  the  courts  will  seek  to  punish  those 
who  are  guilty  of  violations  of  the  law  regardless  of  the  form  of 
association  that  may  have  been  adopted. 

Irrespective  of  whether  they  belong  to  the  corporate  or  the 
voluntary  type  of  association,  all  open  price  associations  may  be 
grouped  according  to  the  following  classification :  they  have  either 
been  organized  as  open  price  associations,  or  they  have  come  into 
existence  as  an  outgrowth  of  a  trade  association,  or  they  have 
had  their  functions  assumed  by  trade  associations  as  a  depart- 
mental activity.8  Most  of  the  associations  that  were  organized 
by  Mr.  Eddy  would  belong  to  the  first  group.  Prominent  exam- 
ples of  the  second  group  are  furnished  by  the  Southern  Pine 
Association  and  the  American  Hardwood  Manufacturers'  Asso- 
ciation. Most  of  the  other  lumber  manufacturers'  associations 
belong  to  the  third  group.9 

In  general  it  may  be  said  that  the  associations  which  belong 
to  the  third  group  show  all  manner  of  differences  in  the  character 
and  scope  of  their  open  price  activities.  This  is  naturally  ex- 
plained by  reason  of  the  fact  that  having  retained  their  identity 
as  trade  associations,  they  have  adopted  only  such  phases  of 
open  price  activity  as  have  seemed  to  offer  a  solution  for  prob- 
lems which  the  old  type  of  organization  has  been  unable  to 
handle.  The  one  element  of  open  price  work  that  all  the  asso- 
ciations of  this  group  have  adopted  in  common  is  price  report- 
ing. With  some  this  is  as  far  as  the  semblance  to  the  Eddy  type 
of  association  goes.  Others  arrange  for  the  sporadic  exchange  of 
information  among  members,  and  still  others  may  have  a  regular 
and  definite  system  of  exchanging  information  of  a  limited  char- 
acter. Seldom,  if  ever,  will  it  be  found  that  an  association  be- 

'A  similar  classification  is  made  by  H.  R.  Tosdal  in  his  article  on  "Open  Price 
Associations"  which  appeared  in  the  American  Economic  Review  for  June,  1917. 
See  p.  336. 

•Examples  of  the  third  group  are:  National  Box  Manufacturers'  Assn.;  Na- 
tional Canners'  Assn.;  National  Association  of  Brass  Manufacturers;  National 
Machine  Tool  Builders'  Assn.;  the  various  associations  of  millers,  etc. 


54  OPEN  PRICE  ASSOCIATIONS  .  [2 1 8 

reports  with  every  one  of  the  other  bureaus.51  The  Associated 
Metal  Lath  Manufacturers  also  have  a  similar  method  of  relaying 
information  from  local  bureaus  to  a  central  office.12 

Where  membership  is  spread  over  a  wide  area  it  is  usually 
found  necessary  to  provide  for  group  meetings.  For  this  purpose 
the  Leather  Belting  Exchange  divides  its  membership  into  two 
groups — one  comprising  the  manufacturers  of  the  West  and  the 
other  those  of  the  East.  The  western  group  meets  in  Chicago 
each  month  and  the  eastern  group  in  New  York  one  week  after 
the  Chicago  meeting,  thus  enabling  the  secretary  to  be  present  at 
both  meetings  and  coordinate  the  work  done.  Further  coordina- 
tion of  the  work  of  the  two  groups  is  obtained  by  holding  a  joint 
meeting  every  three  months.  These  are  held  alternately  at  New 
York  and  Chicago.13  The  American  Hardwood  Manufacturers' 
Association  has  conducted  four  monthly  group  meetings,  these 
being  held  at  Cincinnati,  Ohio;  Memphis,  Tennessee;  New  Or- 
leans, Louisiana;  and  Jackson,  Mississippi.  Once  a  year  all  the 
groups  have  come  together  in  a  convention.14 

Because  it  is  to  the  advantage  of  an  open  price  association 
to  have  as  many  members  as  possible  and  because  restrictions 
would  be  out  of  harmony  with  the  open  price  plan,  it  is  found 
that  restrictions  upon  membership  are  practically  non-existent. 
Membership  is  ordinarily  open  to  any  firm,  corporation,  or  indi- 
vidual in  good  standing  engaged  in  the  particular  line  of  business 
involved,  provided  agreement  is  made,  first,  to  comply  with  the 
provisions  of  the  constitution  and  by-laws;  second,  to  pay  the 
required  fees  and  dues.  However,  it  is  usually  specified  that  only 
those  who  are  engaged  in  the  manufacture  of  the  product  in  which 
the  association  is  interested  are  eligible.  In  this  connection  at 
least  two  associations  would  permit  others  than  manufacturers 
to  become  members  under  certain  restrictions  not  enforced  upon 

uThe  Black  Diamond,  "How  the  National  Association  Reports  Sales,"  Oct.  n, 

'9J9,  PP.  322-324- 

^ Annual  Official  Program,  New  England  Builders'  Supply  Association,  Boston, 

J91?,  P.  43- 

"Spaulding,  W.  V.,  Experiences  in  Cooperative  Competition,  p.  5.  An  address  de- 
livered before  the  Babson  Conference,  Sept.  15,  1915. 

uSa!es  Report  of  A.  R.  Gadd,  Record,  American  Column  and  Lumber  Co.  vs. 
U.  S.,  Vol.  II,  p.  1067. 


219]  STRUCTURAL  FEATURES  55 

longing  to  this  group  has  anything  like  the  complete  system  for 
exchanging  information  among  members  that  is  characteristic  of 
the  Eddy  type.  It  goes  without  saying  that  the  associations 
belonging  to  the  first  two  groups,  having  been  specifically  organ- 
ized to  do  open  price  work,  are  usually  patterned  after  the  Eddy 
type  of  association. 

MEMBERSHIP 

In  order  to  get  the  best  results  out  of  their  cooperative  activi- 
ties, open  price  associations  endeavor  to  gather  within  their  fold 
all  competitors  who  are  engaged  in  the  various  lines  which  these 
associations  would  aspire  to  control.  It  will  therefore  be  found, 
that  in  so  far  as  the  industry  is  localized,  the  membership  of 
these  associations  will  be  localized.  In  so  far  as  the  territorial 
distribution  of  the  industry  is  a  national  one,  membership  will 
be  spread  over  a  wide  area.  No  members  of  the  National  Asso- 
ciation of  the  Finishers  of  Cotton  Fabrics,  for  example,  will  be 
found  anywhere  but  in  the  East,  for  the  industry  is  localized 
there.  On  the  other  hand  membership  in  the  Leather  Belting 
Exchange,  for  example,  is  distributed  over  a  wide  area,  as  is  that 
of  the  American  Hardwood  Manufacturers'  Association  or  the 
National  Coal  Association. 

The  territory  should  undoubtedly  be  limited  sufficiently  to 
permit  of  a  ready  exchange  of  information  and  meetings  of  mem- 
bers at  frequent  intervals.  Where  the  industry  is  such  that 
membership  must  necessarily  cover  a  wide  area  local  exchanges 
may  be  provided  for,  as  in  the  case  of  the  National  Coal  Asso- 
ciation. Before  price  reporting  was  discontinued  by  this  asso- 
ciation,10 four  exchanges  were  maintained  in  all  —  one  in 
Washington,  D.  C.,  one  in  Chicago,  one  in  Cincinnati,  and  one 
in  Pittsburgh.  The  work  of  these  exchanges,  or  "bureaus",  as 
they  are  called  in  the  coal  industry,  was  directed  from  the  na- 
tional headquarters  at  Washington.  Instead  of  making  their 
reports  to  one  central  agency  for  the  industry,  operators  would 
send  them  through  their  local  associations  to  the  nearest  local 
bureau.  Each  local  bureau  in  turn  would  exchange  its  compiled 

10July,  1920. 


56  OPEN  PRICE  ASSOCIATIONS  [22O 

the  others.  The  Ohio  Millers'  State  Association  permits  any 
manufacturer  of  flour  or  meal  to  become  a  "regular"  member 
of  the  association  and  other  persons,  firms,  and  corporations  may 
be  admitted  and  become  "associate"  members,  and  may  have 
all  the  privileges  of  regular  members,  except  voting.15  The  Knit 
Goods  Manufacturers  of  America  also  provides  for  regular  and 
associate  members.  The  regular  members  are  to  be  those  who 
participate  in  the  reporting  plan.16  The  associate  members  are 
divisible  into  two  classes.  One  class  consists  of  manufacturers 
who  do  not  participate  in  open  price  work;  the  other  class  con- 
sists of  sales  agents  or  commission  houses  which  sell  knit  goods, 
and  this  class  is  to  have  no  vote  in  the  management  of  the  asso- 
ciation.17 It  is  evident  that  manufacturers,  even  in  the  few  cases 
where  they  permit  others  than  members  of  their  own  class  to 
come  into  the  association,  are  careful  to  see  that  no  control  of 
management  shall  fall  into  any  other  hands  than  their  own. 

The  rules  determining  the  manner  in  which  members  shall  be 
voted  into  the  association  vary  considerably.  The  most  com- 
mon practise  seems  to  be  to  require  the  affirmative  vote  of  the 
majority  of  members  present  at  regular  meeting.18  The  Tap  and 
Dye  Institute  requires  the  affirmative  vote  of  three-fourths  of 
the  members  present.19  The  Society  of  Manufacturing  Confec- 
tioners requires  the  approval  of  the  executive  committee  followed 
by  the  majority  vote  of  members  present  in  regular  meeting.20 
The  American  Hardwood  Manufacturers'  Association  merely 
requires  a  majority  vote  of  the  Board  of  Directors;21  the  Salt 
Producers'  Association  a  majority  vote  of  the  executive  commit- 
tee.22 The  American  Tack  Manufacturers'  Association  requires 
unanimous  election.23 

^Constitution,  Art.  3,  Sec.  I,  2. 

^Constitution,  Art.  4. 

"Ibid.,  Art.  5,  Sec.  i. 

18For  instance,  the  Ohio  Millers'  State  Assn.;  National  Coal  Assn.;  Leather 
Belting  Exchange;  Steel  Barrel  Manufacturers'  Assn. 

"Constitution,  Art.  3,  Sec.  2. 

^Constitution,  Art.  4,  Sec.  2. 

^Constitution,  Art.  3,  Sec.  2. 

^Constitution,  Art.  3. 

"Tosdal,  H.  R.,  "Open  Price  Associations",  American  Economic  Review,  Vol. 
VII,  No.  2,  p.  339. 


22  I  ]  STRUCTURAL  FEATURES  57 

Provisions  are  usually  inserted  in  the  constitution  indicating 
under  what  circumstances  members  may  be  expelled.  The  usual 
provision  is  that  they  may  be  expelled  "for  good  and  sufficient 
reasons"  by  a  vote  of  the  members,  a  majority  or  three-fourths 
vote  usually  being  required.  The  more  common  reasons  for  ex- 
pulsion are  the  non-payment  of  dues,  and  breach  of  the  constitu- 
tion and  by-laws.  Some  associations  make  members  liable  to 
expulsion  for  filing  misleading  information.24 

Expenses  incurred  in  the  operation  of  open  price  associations 
are  usually  defrayed  by  membership  dues  and  the  levy  of  special 
assessments.  In  addition  some  associations  require  the  payment 
of  an  initiation  fee.  The  Salt  Producers'  Association  has  an  initia- 
tion fee  of  $200.00,  the  Pressed  Metal  Association  $50.00,  the 
Tap  and  Dye  Institute  $100.00,  and  the  Hardwood  Manufactur- 
ers' Association  $25.oo.25  In  exacting  payments  for  dues,  most 
associations  apparently  go  on  the  theory  that  members  derive 
benefits  from  the  work  of  the  association  in  proportion  to  the 
volume  of  their  business.  Practically  all  of  them  base  their  dues 
and  special  assessments  on  a  capacity,  production,  shipments,  or 
sales  basis.  Regular  members  of  the  Ohio  State  Millers'  Asso- 
ciation pay  dues  annually  in  advance  based  upon  the  daily 
capacity  of  each  mill  owned  or  operated  by  each  member.20  The 
common  practise  in  the  lumber  industry  is  to  base  dues  on  the 
number  of  feet  of  logs  cut  annually.  Manufacturers  belonging  to 
the  Hardwood  Manufacturers'  Association,  for  example,  pay  dues 
in  twelve  monthly  installments,  based  on  an  assessment  "at  the 
rate  of  not  to  exceed  five  cents  per  thousand  feet  log  scale,  with 
a  maximum  of  $2000.00  per  annum,  based  on  the  number  of  feet 
of  hardwood  logs  cut  for  the  preceding  calendar  year."27  All 
assessments  levied  by  the  Salt  Producers'  Association  are  on  the 
basis  of  output.28  The  same  is  true  of  the  National  Coal  Associa- 

"Society  of  Manufacturing  Confectioners,  Constitution,  Art.  7.  Sec.  8;  Tap  & 
Dye  Institute,  By -Laws,  Sec.  5. 

•Tosdal,  H.  R.,  "Open  Price  Associations"  Economic  Review,  Vol.  VII,  No. 
2,  P-  339. 

^Constitution,  Art.  6,  Sec.  I. 

"Constitution,  Art.  5,  Sec.  i.     See  Record,  American  Column  &  Lumber  Co.  vs. 

U.S.,  Vol.  i,  p.  73- 
^Constitution,  Art.  5. 


58  OPEN  PRICE  ASSOCIATIONS  [222 

tion.29  The  National  Chair  Manufacturers'  Association  bases  its 
dues  on  the  volume  of  shipments.  The  Tap  and  Die  Institute 
and  the  Steel  Barrel  Manufacturers'  Association  and  the  Society 
of  Manufacturing  Confectioners  base  their  dues  on  the  amount 
of  sales.30 

Obviously  there  is  a  disadvantage  which  militates  against  the 
proper  financing  of  the  work  of  an  association  in  having  dues 
based  upon  the  amount  of  business  done.  Those  in  control  cannot 
be  sure  of  obtaining  stated  amounts  of  money  from  year  to  year. 
It  is  therefore  rendered  difficult  to  plan  a  program  of  financial 
expenditure  that  will  not  overreach  or  underreach  the  size  of  the 
fund  that  is  available  at  any  given  time.  When  business  is  poor, 
the  income  from  dues  is  small,  and  the  consequence  often  is  that 
operations  must  be  curtailed.  Of  course  this  objection  loses  force 
when  those  in  control  are  sagacious  enough  to  reserve  for  the 
lean  years  surplus  funds  that  have  been  collected  during  the  fat 
years. 

Members  as  a  class  have  as  their  chief  duties,  aside  from  the 
payment  of  dues,  first,  to  furnish  information  to  the  central  office, 
second,  to  attend  meetings.  Their  chief  privileges  are  to  vote  at 
meetings  and  to  receive  such  information  as  the  secretary  may 
circulate  among  them.  Usually  the  rule  is  that  unless  members 
are  willing  to  furnish  information,  they  receive  none. 

OFFICERS 

The  list  of  officers  of  an  open  price  association  differs  in  no 
essential  particulars  from  that  which  is  found  in  any  formal  type 
.of  association.  These  officers  are  a  president,  vice-president,  sec- 
retary, treasurer,  and  an  executive  committee  or  a  board  of  direc- 
tors. The  Ohio  Millers'  State  Association  has  both  a  board  of 
directors  and  an  executive  committee.31  Such  an  arrangement  is 
not  often  found.  In  the  lumber  industry  provision  is  also  made 
for  several  vice-presidents.32  The  typical  Eddy  association,  how- 
ever, seldom  has  more  than  one  vice-president. 

"Constitution,  Art.  5. 

^Constitutions,  Art.  6;  Art.  5;  Art.  7;  Sec.  9. 
^Constitution,  Art.  4. 

32 American  Hardwood  Manufacturers'  Assn.,  Constitution,  Art.  8,  Record,  Vol. 
I,  P-  75- 


223]  STRUCTURAL  FEATURES  59 

The  president  is  usually  elected  annually  by  a  majority  vote 
of  the  membership.  He  is  practically  always  a  man  active  in  the 
line  of  business  that  the  association  represents.  In  fact,  the  con- 
stitution of  the  Leather  Belting  Exchange  specifically  states  that 
the  "President  shall  be  a  member  of  the  Exchange,  and  engaged 
in  the  manufacture  of  leather  belting."33  He  performs  the  usual 
duties  of  the  chief  executive  officer.  In  most  constitutions  they 
are  not  minutely  specified.  They  may  be  summed  up  as  follows: 
to  preside  at  all  meetings,  including  those  of  the  executive  com- 
mittee; to  appoint  all  committees  not  provided  for  in  some  other 
way;  call  meetings  of  the  executive  committee,  and  special  meet- 
ings of  the  association  upon  written  request  of  a  certain  number 
of  members,  as  well  as  call  meetings  of  all  permanent  and  special 
committees.  He  is  generally  an  ex-officio  member  of  all  commit- 
tees. It  is  usually  customary  for  him  to  review  the  work  of  the 
year  at  the  annual  meeting. 

The  vice-president  assumes  the  duties  of  the  president  during 
his  absence. 

Most  constitutions  provide  that  the  treasurer  and  the  secretary 
may  be  one  and  the  same  person.  In  cases  where  the  treasurer 
is  not  also  the  secretary  the  common  practise  is  to  elect  him  at 
the  annual  meeting.  Only  in  a  few  cases  is  it  customary  to  elect 
a  treasurer  when  he  is  also  the  secretary.34  More  often  the  pro- 
cedure followed  is  that  the  executive  committee  makes  an  ap- 
pointment subject  to  the  approval  of  the  membership.  The 
constitution  of  the  Leather  Belting  Exchange,  in  contrast  to  the 
general  practise,  specifies  that  the  treasurer  shall  be  a  trust  com- 
pany or  other  banking  corporation  of  recognized  standing,  and 
shall  be  appointed  by  the  exchange.35  In  general  it  is  the  duty 
of  the  treasurer  to  collect  and  receive  all  moneys  of  the  associa- 
tion, pay  all  orders  for  money  when  countersigned  by  the  secre- 
tary, and  keep  a  correct  record  of  all  receipts  and  disbursements. 
If  the  treasurer  and  the  secretary  are  united  in  one  person,  his 
signature  upon  checks  is  usually  considered  sufficient.86 

"By-Laws,  Sec.  2. 

"Tap  &  Dye  Institute,  Constitution,  Art.  i. 
KBy-Laws,  Sec.  4. 

"Society  of  Manufacturing  Confectioners,  By-Laws,  Sec.  3;  Hardwood  Manu- 
facturers' Assn.,  Constitution,  Art.  9,  Sec.  3. 


6O  OPEN  PRICE  ASSOCIATIONS  [224 

The  executive  committee  usually  consists  of  one  or  more  of 
the  elective  officers  in  addition  to  several  elected  members  ranging 
anywhere  from  three  to  seven  in  number.  The  executive  com- 
mittee of  the  Tap  and  Die  Institute  is  composed  of  the  president, 
vice-president,  and  three  other  members  elected  at  the  annual 
meeting.37  That  of  the  Salt  Producers'  Association  is  composed  of 
the  president  and  seven  elected  members.  Only  three  members 
comprise  the  executive  committee  of  the  Leather  Belting  Ex- 
change.38 The  executive  committee  of  the  Ohio  Millers'  State 
Association  is  made  up  of  the  president,  vice-president,  treasurer, 
secretary,  and  a  board  of  directors  comprised  of  five  elected  mem- 
bers.39 The  common  type  of  executive  committee  has  the  general 
power  of  management  of  the  affairs  of  the  association.  Its  func- 
tion is  to  see  that  all  of  the  objects  and  purposes  of  the  association 
are  carried  out.  Typical  of  the  powers  given  to  executive  com- 
mittees are  the  following:  I.  call  special  meetings;  2.  fill  vacant 
offices  until  the  next  annual  meeting;  3.  retain  counsel;  4.  em- 
ploy a  secretary;  5.  authorize  necessary  expenditures.40  Practi- 
cally always  there  is  a  provision  that  all  acts  of  the  executive 
committee  must  be  submitted  to  the  next  regular  or  special  meet- 
ing of  the  association  for  approval. 

The  office  of  the  secretary  is  by  far  the  most  important  cog  in 
the  machinery  of  the  open  price  organization.  The  secretary  of 
one  open  price  association  writes  as  follows :  "The  success  of  any 
individual  organization  depends  entirely  on  the  secretary  and  un- 
questionably most  of  the  failures  of  the  association  work  have 
been  due  to  his  ignorance  of  what  constitutes  proper  cooperation 
and  how  to  attain  it."41  A  representative  of  Babson's  Statistical 
Organization  who  has  been  active  in  acquainting  the  business 
world  with  the  open  price  form  of  cooperation  states  that  a  secre- 
tary should  be,  first,  an  executive  officer,  not  merely  a  clerk; 
second,  he  should  have  business  experience,  education,  tact,  and 
ability  to  speak  in  public;  third,  he  should  command  respect  for 

V Constitution,  Art.  4,  Sec.  3. 
**By-Laws,  Sec.  2. 
"By-Laws,  Art.  i,  Sec.  5- 

"Society  of  Manufacturing  Confectioners,  Constitution,  Art.  3,  Sec.  4. 
"Letter  from  D.  S.  Hunter,  Secretary  of  the  Steel  Barrel  Manufacturers'  Assn., 
Dec.  20,  1920. 


225]  STRUCTURAL  FEATURES  6l 

his  merits  as  a  man;  fourth,  that  it  is  not  necessary  that  he  be 
familiar  with  the  line  of  business  that  the  association  is  at  work 
on.42  In  addition  it  should  be  remarked  that  it  is  absolutely 
necessary  that  he  be  a  man  of  integrity  and  dignity,  for  he  occu- 
pies a  position  of  confidence  and  trust.  Because  of  his  position 
of  confidence  and  trust  a  provision  is  found  in  most  constitutions 
specifying  that  he  must  have  no  connection  or  affiliation  with  the 
line  of  business  with  which  the  association  is  identified.  The 
secretary  is  usually  the  only  salaried  officer  of  the  association. 

Most  associations  outline  the  duties  of  the  secretary  very 
minutely.  Undoubtedly  this  is  done  because  of  the  feeling  of  dis- 
trust that  prevails  among  competitors  who  at  the  outset  of  their 
experiment  in  cooperation  are  in  a  state  of  mind  which  prompts 
them  to  throw  all  the  safeguards  that  they  can  about  themselves. 
Some  associations  require  that  the  secretary  retain  in  absolute 
secrecy  all  information  furnished  him  by  members,  and  it  is  often 
specified  that  when  he  has  made  proper  record  thereof  the  state- 
ments conveying  the  information  shall  be  returned  to  their  owners 
or  be  destroyed.43  In  one  case  the  secretary  is  required  to  keep 
this  information  secret  even  from  the  executive  committee.44 

The  secretary  may  be  either  elected  or  appointed.  Where 
election  is  the  rule  the  electing  is  usually  done  by  the  association 
as  a  whole;  where  appointment  is  the  rule  the  appointing  is  usu- 
ally done  by  the  executive  committee  subject  to  the  approval  of 
the  association.  There  are  exceptions  to  both  statements,  how- 
ever. In  the  case  of  the  Ohio  Millers'  State  Association  the  secre- 
tary is  elected  by  the  executive  committee.45  In  the  Leather  Belt- 
ing Exchange  the  office  is  filled  by  an  election  conducted  by  the 
exchange.46  The  same  is  true  of  the  Tap  and  Die  Institute.47 

"Address  of  G.  E.  Macllwaine  before  American  Specialty  Manufacturers' 
Assn.,  New  York  Journal  of  Commerce ,  Dec.  1 i,  1916. 

"Leather  Belting  Exchange,  By-Laws,  Sec.  2. 

**The  North  Carolina  Pine  Box  and  Shook  Manufacturers'  Assn.  requires  that 
reports  received  from  members  be  destroyed.  See  Weekly  Sales  and  Lumber  Price 
Report.  The  Leather  Belting  Exchange  requires  that  all  papers  be  returned  to 
their  owners.  See  By-Laws,  Sec.  1. 

^Constitution,  Art.  4,  Sec.  4. 

*By-Laws,  Sec.  4. 

"Constitution,  Art.  4,  Sec.  2. 


62  OPEN  PRICE  ASSOCIATIONS  [226 

Appointment  is  made  by  the  membership  in  the  case  of  the  Na- 
tional Coal  Association.48 

The  duties  of  the  secretary,  as  outlined  by  one  association,  are, 
first,  to  provide  and  operate  a  regular  central  office  for  the  proper 
care  of  business;  second,  to  take  care  of  finances  and  funds; 
third,  to  keep  in  close  personal  touch  with  all  members  at  meet- 
ings and  by  personal  visits;  fourth,  to  conduct  necessary  corre- 
spondence; fifth,  to  maintain  and  increase  membership;  sixth,  to 
serve  as  a  clearing  house  between  the  members  for  the  exchange  of 
credit  information;  seventh,  to  develop  and  distribute  information 
and  statistics  of  educational  value  relating  to  costs  of  production, 
selling  markets,  trade  and  labor  conditions;  eighth,  to  attend  all 
meetings  and  keep  accurate  stenographic  records  thereof.49  Other 
duties  sometimes  enumerated  are,  to  send  copies  of  minutes  of 
meetings  of  the  association  and  the  executive  committee  to  mem- 
bers;50 to  keep  a  list  of  members  and  the  date  of  their  election;51 
to  notify  all  members  of  assessments  due;  to  notify  all  members 
of  the  times  and  places  of  meetings;52  to  examine  all  bills  and 
countersign  all  orders  on  the  treasurer;53  to  prepare  an  annual 
and  semi-annual  report  of  all  transactions  and  all  conditions;54 
to  preside  at  all  meetings.55 

THE  CENTRAL  OFFICE 

An  essential  part  of  the  structure  of  an  open  price  association 
is  an  office  where  the  secretary  may  carry  on  the  work  of  gath- 
ering and  disseminating  information.  Some  associations  have 
their  own  central  office  in  charge  of  a  salaried  secretary.58  How- 
ever, a  very  common  practise  is  for  several  open  price  associations 
to  have  an  office  and  secretary  in  common.87  There  is  a  tendency 

^Constitution,  Art.  2. 

49Tap  &  Dye  Institute,  By-Laws,  Sec.  2. 

"Leather  Belting  Exchange,  By-Laws,  Sec.  3. 

B1Steel  Barrel  Manufacturers'  Assn.,  Constitution,  Art.  4,  Sec.  4. 

82Society  of  Manufacturing  Confectioners,  By-Laws,  Sec.  3. 

"Society  of  Manufacturing  Confectioners,  By-Laws,  Sec.  3. 

"American  Hardwood  Manufacturers'  Assn.,  Constitution,  Art.  9,  Sec.  4. 

"Leather  Belting  Exchange,  By-Laws,  Sec.  3. 

MFor  instance,  Bridge  Builders'  Society;  National  Association  of  Finishers  of 
Cotton  Fabrics;  Leather  Belting  Exchange. 

87A.  A.  Ainsworth  and  A.  A.  Blake  each  serve  about  a  dozen  associations  in  New 
York  City. 


227]  STRUCTURAL  FEATURES  63 

in  the  direction  of  centralization  of  this  kind.  Not  only  does  it 
reduce  expense,  but  it  makes  possible  the  employment  of  a  secre- 
tary, highly  trained  in  cooperative  work,  whose  salary  in  the 
aggregate  would  be  too  large,  perhaps,  for  any  one  association 
to  undertake  to  pay.  Secretaries  find,  that  by  a  proper  organiza- 
tion of  their  office  force,  they  can  readily  handle  several  associa- 
tions. In  fact,  the  experience  which  a  secretary  derives  from 
coming  in  contact  with  the  problems  of  several  different  lines  of 
business  can  be  used  to  good  account  in  coping  with  the  problems 
that  are  encountered  by  any  one  of  the  associations.  Where  open 
price  work  is  done  as  an  adjunct  to  other  trade  association  activi- 
ties it  is  customary  for  the  trade  association  secretary  also  to 
assume  the  duties  connected  therewith.  A  few  instances  may  be 
found  where  an  association  does  not  run  an  office  of  its  own  nor 
employ  a  secretary,  but  simply  arranges  for  an  outside  agency 
to  manage  the  details  of  operation.  The  Pressed  Metal  Associa- 
tion, for  example,  has  its  open  price  work  done  by  a  Boston  firm 
of  certified  public  accountants.88  The  Associated  Metal  Lath 
Manufacturers  and  the  Linseed  Crushers'  Council  operate  through 
the  Armstrong  Bureau  of  Related  Industries,  located  in  Chicago.59 

MEETINGS 

Great  stress  is  placed  on  the  importance  of  bringing  members 
frequently  together  in  meetings.  Most  of  the  associations  that 
are  planned  along  the  lines  advocated  by  Mr.  Eddy  have  monthly 
meetings.60  A  few  have  them  two  months  apart.61  Those  asso- 
ciations that  are  really  trade  associations  engaged  in  open  price 
work  as  a  branch  of  their  activity  usually  have  meetiugs  only 
once  or  twice  a  year.82  Besides  the  monthly  meetings  there  are 
the  annual  and  special  meetings.  The  constitution  nearly  always 
provides  a  set  date  for  regular  and  annual  meetings.  Special 

"Scovell- Wellington  &  Co. 

"For  a  description  of  the  Armstrong  Plan,  see  Montague  Ferry's  book,  Intelli- 
gent Selfishness,  Chicago,  1919. 

•°For  instance,  Leather  Belting  Exchange;  Cotton  Finishers;  Bridge  Builders' 
Society,  American  Hardwood  Manufacturers'  Association. 

"For  instance,  Steel  Barrel  Manufacturers'  Assn. 

"Examples  are  Knit  Goods  Manufacturers  of  America;  Ohio  State  Millers' 
Assn. 


64  OPEN  PRICE  ASSOCIATIONS  [228 

meetings  may  usually  be  called  by  the  president,  or  on  the 
written  request  of  a  certain  number  of  members.  The  constitution 
of  the  Leather  Belting  Exchange,  however,  provides  that  special 
meetings  may  be  called  at  any  time  or  place  by  the  executive 
committee,  or  upon  the  demand  of  six  members.  That  of  the 
Knit  Goods  Manufacturers  of  America  provides  that  they  may 
be  called  upon  the  request  of  the  secretary,  or  by  five  members, 
or  a  majority  of  the  executive  committee,  or  "upon  the  sole 
authority  of  the  President."63  Sometimes  the  date  for  the  monthly 
meeting  of  the  executive  committee  is  specified.64  It  is  nearly 
always  provided  that  members  must  be  notified  of  meetings  a 
certain  number  of  days  in  advance.  The  usual  quorum  for  the 
transaction  of  business  is  a  majority  of  the  membership.  The 
Ohio  Millers'  State  Association  provides  that  fifteen  members 
present  at  meetings  shall  constitute  a  quorum.85 

A  few  associations,  judging  from  the  clauses  incorporated  in 
their  constitutions,  encourage  the  attendance  of  buyers  at  meet- 
ings;66 others  prohibit  it;67  the  majority,  however,  make  no  decla- 
ration on  the  matter. 

Those  who  are  uninitiated  in  the  work  of  open  price  associations 
would  naturally  suppose  that  the  chief  topic  of  discussion  in 
meetings  is  prices.  The  truth  seems  to  be  that  prices,  themselves, 
are  not  so  much  discussed  as  are,  first,  the  circumstances  attend- 
ing the  quotation  of  certain  prices,  second,  the  conditions  of  the 
market  that  make  for  lower  or  higher  prices.  The  reason  for  the 
apparent  anomaly,  that  prices  themselves  are  not  discussed  to 
any  extent  in  an  open  price  meeting,  is  that  this  information  is 
imparted  to  the  membership  through  the  reporting  system.  Mem- 
bers, therefore,  already  know  what  prices  have  been  charged,  and 
they  come  to  the  meetings  to  find  out  why  prices  are  as  they 
are,  and  to  learn  what  the  business  outlook  is  in  order  that  they 
may  put  themselves  in  a  position  to  quote  future  prices  intelli- 

nConstitution,  Art.  8,  Sec.  1. 

"See  Constitution,  Franklin  County  Coal  Operators'  Assn.,  Art.  i. 

^Constitution,  Art.  7,  Sec.  3. 

"Knit  Goods  Manufacturers  of  America,  Constitution,  Art.  8;  American  Hard- 
wood Manufacturers'  Assn.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S., 
Vol.  Ill,  p.  1104;  Society  of  Manufacturing  Confectioners,  Constitution,  Art.  5. 

"Steel  Barrel  Manufacturers'  Assn.,  Letter,  Jan.  20,  1921. 


229]  STRUCTURAL  FEATURES  65 

gently.  An  examination  of  the  minutes  of  all  the  group  meetings 
of  the  American  Hardwood  Manufacturers'  Association  for  the 
year  1919  discloses  only  three  references  to  the  prices  of  specific 
items  of  lumber,  and  two  of  these,  by  the  way,  were  made  by 
non-members  of  the  plan.68  Undoubtedly  there  is  a  temptation 
to  discuss  future  prices;  it  is  therefore  generally  provided  that 
counsel  be  present  at  meetings  to  see  that  discussions  are  confined 
to  strictly  lawful  subject  matter. 

The  Eddy  associations  appear  to  be  very  scrupulous  in  avoid- 
ing discussion  that  might  be  construed  to  be  in  violation  of  the 
law.  Among  organizations  that  have  not  come  under  the  influence 
of  Mr.  Eddy  or  his  lieutenants  less  vigilance  in  this  respect  is  not 
infrequently  displayed.  The  following  quotation  illustrates  the 
kind  of  discussion  which  is  permitted  by  many  so-called  open 
price  associations  but  which  would  not  be  tolerated  by  an  Eddy 
association: 

"As  showing  the  utility  of  the  Price  Exchange  Plan,  a  price 
was  taken  from  the  first  report  presented  and  was  stated  to  the 
members  present  for  their  opinion.  The  merchandise  concerned 
was  a  176-needle  half  hose,  16  ounce,  with  looped  toe,  sold  at 
$1.15.  It  was  the  opinion  of  all,  including  several  New  York  sell- 
ing agents  who  were  present  as  guests  that  the  price  was  too  low, 
and  one  selling  agent  stated  that  the  price  should  be  #i.25."69 

Reference  to  the  minutes  of  a  typical  Eddy  Association  shows 
that  members  are  not  even  permitted  to  act  as  a  body  in  stand- 
ardizing terms  of  payment.70  In  as  much  as  terms  of  payment 
are  an  integral  part  of  price,  a  united  effort  to  fix  terms  would 
be  just  as  illegal  as  a  united  effort  to  fix  the  prices  themselves. 
Apparently  this  fact  is  not  recognized  among  many  associations 
because  the  practise  of  standardizing  terms  is  exceedingly 
prevalent.71 

In  general  the  chief  features  of  an  open  price  meeting  program 
as  conducted  by  the  typical  Eddy  associations  may  be  summa- 

"See  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  I,  p.  100. 

"Account  of  a  meeting  of  the  Pennsylvania  Division  of  the  National  Association 
of  Hosiery  &  Underwear  Manufacturers,  Textile  World  Journal,  Oct.  20,  1917,  p.  73. 

"The  Drill  and  Reamer  Society,  Minutes  of  Meeting,  June  n,  1920. 

"Particularly  so  in  the  lumber  industry.  See  American  Lumberman,  Dec.  22, 
1917;  Nov.  3,  1917;  Oct.  20,  1917. 


66  OPEN  PRICE  ASSOCIATIONS  [2jO 

rized  as  follows:  first,  a  meeting  of  the  executive  committee, 
followed  by  a  meeting  of  the  association;  second,  the  transaction 
of  all  routine  business;  third,  discussion  of  questions  touching 
on  the  details  of  past  transactions  such  as  reasons  for  quoting 
certain  prices,  methods  of  figuring  costs,  and  the  like;72  fourth, 
the  hearing  of  reports  from  each  member  regarding  general  con- 
ditions in  the  industry.73 

The  device  adopted  by  the  American  Hardwood  Manufactur- 
ers' Association  for  making  the  round  robin  discussion  of  market 
conditions  most  effective  is  worthy  of  special  comment.  Prior 
to  the  holding  of  the  monthly  meetings  a  questionnaire  was  sent 
to  each  member.  The  following  questions  were  contained  in 
the  questionnaire: 

1.  "From  what  class  of  customers   are  your  inquiries  com- 
ing and  what  per  cent  of  your  total  inquiries  come  from  each 
class  ? 

2.  "From  what  class  of  customers  are  your  orders  coming 
and  what  per  cent  of  your  total  orders  come  from  this  class? 

3.  "Check  off  from  the  following  list  how  long  it  would  take 
you  to  ship  out  the  total  orders  on  hand  working  under  normal 
conditions,  and  assuming  that  all  orders  you  have  on  your  books 
are  ready  for  shipment. 

4.  "What  is  your  total  production  of  hardwoods  during  the 

month  of ?    What  do  you  estimate  your  production  will 

probably  be  for  ....  months? 

5.  "What  is  your  total  present  stock  of  hardwoods,  sold  and 
unsold?    What  part  of  your  present  stock  of  hardwood  is  unsold? 

6.  "Are  your  labor  conditions  any  different    from    30    days 
ago?     Are  they  better  or  worse?     What  caused  the  change,  if 
any? 

7.  "How  is   the  car  supply   at  the  present  time;   better  or 
worse,  as  compared  with  30  days  ago?     What  per  cent  of  your 
requirements  are  you  getting? 

8.  "How  are  your  collections?  Are  they  better  or  worse  as 
compared  with  30  days  ago? 

"See  Textile  World  Journal,  Jan.  13,  1917,  p.  109. 

^Transcript  of  Minutes  of  Meeting  of  the  American  Hardwood  Manufacturers' 
Assn.  may  be  found  in  the  appendix.  See  Exh.  No.  2. 


231]  STRUCTURAL  FEATURES  6/ 

9.  "What  per  cent  of  normal  for  this  time  of  the  year  is  your 
present  supply  of  logs  banked  ahead  of  the  mill? 

10.  "Do  you  expect  to  be  shut  down    within    the    next    few 
months  on  account  of  the  shortage  of  logs,  or  for  any  other  rea- 
son?    If  so,  please  state  how  long  mill  will  be  idle. 

11.  "What  is  your  view  of  market  conditions  for  the  next 
few  months?     What  is  the  general  outlook  for  business?     State 
all  reasons  for  your  conclusions."74 

A  summary  of  the  replies  received  under  each  head  was  pre- 
pared by  the  manager  of  statistics  and  the  results  were  made 
the  basis  of  discussion  at  the  next  group  meetings,  each  member 
present  being  called  upon  in  turn  to  express  his  point  of  view 
with  reference  to  each  question  as  it  came  up  for  discussion. 
Gathered,  as  they  were,  from  a  substantial  part  of  the  whole 
industry,  these  data  when  properly  summarized  gave  a  bird's- 
eye  view  of  the  industry,  which,  when  reenforced  by  an  open 
and  free  discussion  in  meetings,  proved  a  great  aid  to  members 
in  finding  remedies  for  conditions  that  were  unsatisfactory. 

It  is  peculiarly  characteristic  of  the  open  price  meeting  that 
discussions,  instead  of  being  of  a  rambling,  disconnected  nature 
and  leading  to  no  definite  end,  are  calculated  to  give  each  mem- 
ber a  perspective  of  the  industry  as  a  whole  to  the  effect  that 
he  may  direct  his  individual  business  efforts  in  consonance  with 
those  of  all  the  others  in  such  a  way  as  to  inure  to  the  greatest 
profit  of  all." 


"Affidavit  of  F.  R.  Gadd,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S., 
Vol.  II,  p.  noi. 
"For  a  copy  of  a  typical  open  price  constitution,  see  appendix,  Exh.  3. 


CHAPTER  V 
THE  REPORTING  PLAN 

Barring  the  work  done  at  meetings,  the  reporting  system  cov- 
ers most  of  the  activities  ordinarily  engaged  in  by  open  price 
associations.  Since  no  two  industries  use  the  same  method  in 
marketing  their  output  there  will  be  found  points  of  difference 
in  every  reporting  plan;  however,  these  plans  readily  group 
themselves  into  two  broad  classes:  one  pertains  to  manufacturers 
who  produce  goods  sold  to  jobbers  and  retailers  primarily;  the 
other  to  manufacturers  who  make  goods  only  to  specification, 
each  contract  differing  more  or  less  from  all  others  and  calling 
for  special  bids  and  prices.1 

REPORTING  AMONG  MANUFACTURERS  WHO  MAKE  GOODS  TO 
SPECIFICATION 

Variations  in  plans  among  this  group  of  manufacturers  are 
less  pronounced  than  they  are  among  the  other  group.  Mr. 
Eddy  evidently  had  chiefly  the  class  of  contracting  manufactur- 
ers in  mind  when  he  wrote  his  book,  for  only  passing  notice  is 
given  to  the  class  of  manufacturers  that  sells  to  jobbers  and 
retailers.2  Briefly  outlined,  Mr.  Eddy's  plan,  as  presented  in 
his  book,  calls  for  the  filing  by  members  of  all  inquiries  received, 
all  bids  made,  and  all  contracts  awarded.  Under  this  plan  the 
secretary  does  not  permit  the  information  contained  in  the  re- 
ports of  inquiries  to  be  interchanged  among  members  for  the 
reason  that  there  would  be  a  strong  temptation  for  members  to 
resort  to  collusive  bidding.3  The  reports  of  inquiries  are  used 
to  make  up  a  weekly  bulletin  containing  statistical  information 
throwing  light  on  the  volume  of  work  in  prospect,  as  well  as  the 
general  character  of  the  work.  The  secretary  interchanges  all 


,  A.  J.,  New  Competition,  p.  123. 
*/*»</.,  p.  123. 
.  128. 

68 


233]  THE  REPORTING  PLAN  69 

bids  as  received  among  those  who  have  bid  on  a  given  piece  of 
work,  provided  that  all  have  filed  copies  of  their  bids  and  have 
not  marked  them  "sealed".  Those  who  have  not  filed  copies 
of  their  bids  get  no  information  concerning  the  bids  of  the  others. 
If  a  member  sends  in  a  bid  marked  "sealed"  the  secretary  will 
retain  it,  and  no  information  regarding  that  bid  will  be  sent  to 
other  members  until  after  the  contract  is  awarded,  whereupon 
all  bids  are  opened  for  discussion.  The  member  who  marks 
his  bid  "sealed"  gets  no  information  regarding  other  bids.  Ap- 
parently the  reason  for  a  provision  calling  for  "sealed  bids"  is 
to  induce  the  skeptical  to  try  out  the  open  price  plan  by  giving 
them  the  right  to  file  bids  sealed  if  they  so  desire;  in  time  they 
drop  the  practise  because  it  offers  no  advantages.*  No  bidder 
is  bound  to  adhere  to  the  bid  that  he  has  filed.  After  ascertaining 
the  bids  of  others  he  is  free  to  lower  his  own  bid  to  obtain  the 
work,  but  he  must  immediately  file  all  changes  so  as  to  give 
other  bidders  opportunity  to  revise  their  bids  if  they  care  to  do 
so.  The  final  report  sent  out  to  the  bidders  by  the  secretary 
is  a  copy  of  the  contract  as  finally  awarded.  This,  in  brief, 
constitutes  the  reporting  system  as  laid  down  by  Mr.  Eddy  for 
this  class  of  manufacturers.5 

How  closely  have  open  price  associations  followed  the  plan 
laid  down  by  Mr.  Eddy?  At  any  rate,  among  those  associations 
for  which  Mr.  Eddy's  successor  is  counsel,  there  appears  to  be 
one  pronounced  deviation.6  This  pertains  to  the  matter  of  inqui- 
ries. In  his  testimony  before  the  New  York  Joint  Legislative 
Committee  on  Housing,  Mr.  Eddy's  successor  stated  that  none 
of  the  associations  with  which  he  was  connected  made  reports 
of  inquiries.  He  could  not  explain  why  this  feature  had  not 

*The  Bridge  Builders'  Society  started  this  plan,  but  soon  dropped  it.  See  testi- 
mony of  J.  S.  Dean,  Record,  U.  S.  vs.  United  States  Steel  Corporation,  Vol.  2,  p. 

797. 

§Eddy,  A.  J.,  New  Competition,  ch.  VI. 

•Mr.  Wm.  J.  Mathews,  Mr.  Eddy's  successor,  is  counsel  for  the  following  asso- 
ciations organized  by  Mr.  Eddy:  Bridge  Builders  and  Structural  Society;  Ring 
Travellers'  Society;  Hoop  Band  Strip  Steel  Institute;  Institute  of  Makers  of  Ex- 
plosives, Dynamite  and  Gun  Powder;  Bolt,  Nut  and  Rivet  Society;  Cold  Roll 
StripSteel  Institute;  Wire  Fence  Manufacturers;  National  Association  of  Finishers 
of  Cotton  Fabrics.  See  Hearings  before  Joint  Legislative  Committee  on  Housing, 
•New  York  City,  N.  Y.,  Dec.  29,  1920,  Record,  p.  4602. 


7O  OPEN  PRICE  ASSOCIATIONS  [234 

been  adopted  by  Mr.  Eddy  when  he  organized  these  associa- 
tions.7 Perhaps  he  feared  that  outsiders  might  come  to  the 
conclusion  that  inquiries  were  being  reported  in  order  to  accom- 
plish collusive  bidding.  Undoubtedly  members  could  improve 
their  position  with  this  information  at  hand  without  resorting 
to  collusive  bidding.  Such  reports  would  throw  a  light  on  the 
volume  of  work  in  prospect.  If  they  showed,  for  example,  that  a 
large  volume  of  work  was  pending,  members  would  be  careful 
not  to  contract  to  capacity  for  low  priced  work  and  a  stiffening 
of  prices  would  undoubtedly  come  about  in  shorter  time  than 
might  otherwise  have  been  the  case. 

The  other  features  of  the  Eddy  plan  for  this  class  of  manu- 
facturers have  been  adopted  in  their  general  outlines.  Varia- 
tions in  the  detailed  workings  of  the  plan  are  of  course  to  be 
found.  The  procedure  in  vogue  among  the  Pressed  Metal  Manu- 
facturers may  be  regarded  as  typical.  Copies  of  bids  are  mailed 
to  the  office  of  the  commissioner  where  all  bids  are  arranged  in 
a  file  according  to  the  names  of  the  prospective  customers.  If 
within  a  period  of  two  months  no  other  bids  are  received  on  the 
same  contract  it  is  assumed  that  no  competitive  bids  were  made. 
As  soon  as  the  records  show  that  two  members  have  quoted  on 
the  same  contract,  a  report  is  made  out  on  a  form  provided  for 
the  purpose,  showing  the  names  of  members  quoting,  the  part 
number  quoted  on,  rate  per  thousand  for  parts,  and  the  charge 
for  tools.  A  copy  of  this  report  is  mailed  to  both  members 
quoting,  but  not  to  the  other  members.  If  one  of  the  members 
obtains  the  order  he  makes  a  report  of  it  to  the  commissioner, 
who  in  turn  relays  the  information  to  the  unsuccessful  bidders. 
At  the  regular  monthly  meeting  a  statistical  report  is  read  show- 
ing the  number  of  bids  which  have  been  reported,  the  number 
which  are  competitive,  and  the  number  which  are  closed.8 

In  the  case  of  the  National  Association  of  Finishers  of  Cotton 
Fabrics  the  members  quote  daily  as  soon  as  made  every  quo- 
tation, written  or  verbal,  giving  name  of  customer,  description 

'Testimony  of  Wm.  J.  Mathews  before  the  New  York  Joint  Legislative  Com- 
mittee on  Housing,  New  York  City,  N.  Y.,  Dec.  29,  1920,  Record,  p.  4633. 

sTosdal,  H.  R.,  "Open  Price  Associations,"  American  Economic  Review,  Vol. 
VII,  No.  2,  June  17,  1917,  p.  343. 


235]  THE  REPORTING  PLAN  71 

of  work,  quantity,  terms,  discounts,  "and  all  inducements,  direct 
or  indirect."  Each  week  each  member  files  with  the  secretary 
on  a  blank  prepared  for  the  purpose  statistical  information  as 
to  "quantity  of  orders  in  pounds  or  yards  and  the  number  of 
days'  work  ahead."  The  secretary  classifies  the  information 
received  and  makes  daily  and  weekly  reports  to  members,  send- 
ing the  summarized  reports  to  those,  only,  who  have  contributed 
information.9 

The  Eddy  associations  make  an  exception  to  the  general  pro- 
cedure of  reporting  as  illustrated  by  the  cotton  finishers  and 
pressed  metal  manufacturers  where  bidding  is  done  on  contracts 
for  governmental  or  other  public  bodies.  Where  work  of  this 
kind  is  involved,  bids  are  not  exchanged  because  these  bodies 
will  accept  only  one  bid  from  each  bidder  and  that  bid  must 
be  delivered  sealed  and  is  to  be  opened  only  on  a  specified  date 
and  hour.10 

An  interesting  deviation  from  the  plans  characteristic  of  the 
Eddy  associations  is  in  use  by  the  National  Bottle  Manufactur- 
ers' Association.  In  this  case  an  exchange  of  information  is 
made  only  upon  the  request  of  some  member.  The  member 
desiring  the  exchange  of  information  fills  out  a  specially  prepared 
form.  He  wants  to  know  two  things:  first,  what  prices  and  terms 
have  been  quoted  on  the  contract  in  which  he  is  interested; 
second,  who  the  successful  bidder  is  and  what  prices  and  terms 
he  has  made  to  obtain  the  contract.  The  customer's  name  and 
address  are  shown;  a  description  of  the  contract  is  given;  and 
the  bid  made  by  the  inquiring  member  is  fully  described.  Upon 
receipt  of  this  inquiry,  the  secretary  sends  out  on  a  prepared 
form  a  request  to  every  member  for  information  bearing  on  this 
contract.  Members  are  asked  to  state,  first,  whether  or  not  they 
have  quoted  on  this  contract,  and  if  so,  what  terms  were  made; 
second,  whether  or  not  the  order  was  received,  and  if  so,  on  what 
terms.  Members  reply  directly  on  the  forms.  The  secretary 


.,  p.  342.  For  an  account  of  the  reporting  system  of  the  Bridge  Builders 
and  Structural  Society,  see  Record,  U.  S.  vs.  U.  S.  Steel  Corporation,  Vol.  II, 
PP-  797-803.  For  a  general  description  of  the  Eddy  reporting  system,  see  testi- 
mony of  Wm.  J.  Mathews  before  the  N.  Y.  Joint  Legislative  Committee  on  Housing, 
Dec.  29,  1920,  pp.  4630-4636. 
™Ibid.,  p.  4634. 


72  OPEN  PRICE  ASSOCIATIONS  [236 

compiles  on  another  prepared  form  the  information  received,  and 
mails  it  to  the  members  who  have  made  reports  in  response  to 
the  inquiry.  The  result  is  that  these  members  obtain  the  fol- 
lowing information  about  the  contract  in  question:  first,  a  full 
description  of  the  terms  made  by  each  bidder  reporting;  second, 
the  name  of  the  successful  bidder  and  the  terms  that  he  made, 
including  price,  date  of  shipments,  freight  allowance,  and  any 
other  inducements,  direct  or  indirect.  The  only  name  disclosed 
by  the  secretary  is  that  of  the  successful  bidder.  The  names 
of  the  other  bidders  are  designated  by  letter.  Only  the  secretary 
has  the  key  to  the  lettering  system.  This  offers  one  illustration 
among  many  that  might  be  given  of  the  secretiveness  that  per- 
sists among  members  even  after  they  have  joined  hands  in  an 
open  price  association.  They  are  not  willing  to  disclose  their 
names  for  fear  that  a  competitor  might  work  them  an  injury. 

REPORTING  AMONG  MANUFACTURERS  WHO  SELL  TO  JOBBERS 
AND  RETAILERS 

The  business  facts  most  commonly  exchanged  among  this 
class  of  manufacturers  are  those  relating  to  prices  and  terms  of 
payment,  production,  orders,  shipments,  stocks,  purchases,  manu- 
facturing and  selling  costs,  returned  goods,  cancellations,  adver- 
tising, and  credits.  Some  of  this  information,  particularly  that 
relating  to  manufacturing  costs,  orders,  purchases  and  credits,  is 
also  exchanged  among  manufacturers  of  the  class  just  described 
but  the  practise  is  less  common  than  it  is  among  the  class  that 
sells  to  jobbers  and  retailers. 

In  order  to  make  prices  and  trade  and  cost  statistics  compara- 
ble it  is  imperative  that  the  goods  be  closely  graded  or  standard- 
ized. It  will  accordingly  be  found  that  an  amazing  degree  of 
standardization  has  taken  place  among  manufacturers  who  are 
members  of  open  price  associations.  Of  course  standardization 
in  many  instances  was  begun  long  before  open  price  work  was 
contemplated  because  of  other  numerous  advantages  of  having 
standardized  commodities,  but  certainly  the  open  price  move- 
ment has  greatly  accelerated  progress  in  the  direction  of 
standardization.11 

•     "For  a  good  example  of  standardization  see  form  for  reporting  prices  in  use  by 


237]  THE  REPORTING  PLAN  73 

A  few  cases  are  found  where  open  price  work  is  being  done  in 
a  limited  way  even  tho  little  standardization  has  been  accom- 
plished. Some  industries  do  not  lend  themselves  to  standardiza- 
tion because  individuality  of  style  is  sought  after  and  is  a  strong 
factor  in  competition.  One  of  these  industries  is  the  textile  in- 
dustry. Open  price  associations  in  this  field,  notably  the  Woolen 
Goods  Exchange  and  the  Knit  Goods  Manufacturers  of  America, 
have  endeavored  to  overcome  in  some  degree  the  difficulty  in- 
volved in  obtaining  comparable  information,  by  having  members 
file  with  the  secretary  samples  of  the  goods  which  each  manu- 
facturer is  marketing,  with  a  price  tag  attached  to  each  sample. 
Members  are  then  privileged  to  come  to  the  office  of  the  secre- 
tary to  view  these  samples.12 

A  unique  method  that  aims  to  accomplish  the  same  purpose 
is  in  use  among  chair  manufacturers.  Each  manufacturer  mails 
the  secretary  a  photographic  reproduction  of  each  style  of  chair 
that  he  has  on  the  market  and  indicates  on  the  face  of  the  pho- 
tograph the  price  that  is  being  quoted.  The  secretary  provides 
each  reporting  member  with  a  copy  of  all  photographs.  Members 
thereafter  inform  him  of  all  changes  in  quotations  and  he,  in 
turn,  instructs  the  membership  to  change  the  price  indicated  on 
the  photographic  plates  accordingly.  Of  course  this  plan  is  not 
entirely  satisfactory  because  the  photographic  plates  give  little 
inkling  of  what  the  quality  and  workmanship  may  be. 

Many  open  price  associations  confine  their  reporting  to  a  se- 
lected list  of  products.  Newly  organized  associations  find  it  most 
expedient  to  limit  their  price  reporting  to  one  or  two  products 
because  of  the  difficulties  that  are  always  to  be  encountered  in 
getting  the  work  on  a  going  basis.  The  products  first  chosen 
are  those,  usually,  which  are  the  easiest  to  standardize  and  the 
most  competitive  in  character.  After  an  organization  for  price 
reporting  has  been  built  up,  it  becomes  relatively  easy  to  add 
other  products  to  the  list.  The  members  of  the  Woolen  Ex- 
change, for  example,  began  reporting  (July  I,  1916)  only  on 
staple  men's  wear  and  broadcloths;  these  goods  were  the  most 
competitive  and  were  sufficiently  uniform  in  grade  to  enable 

the  Society  of  Manufacturing  Confectioners,  appendix,  Exh.  4. 
^Textile  World  Journal,  Jan.  13,  1917,  p.  60. 


74  OPEN  PRICE  ASSOCIATIONS  [238 

price  comparisons  to  be  made.  Soon  uniform  cloths  were  added. 
These  were  followed  by  a  considerable  line  of  women's  wear 
fabrics  and  toward  the  end  of  that  year  several  lines  of  fancy 
goods  were  added.13  Members  of  the  American  Hardwood 
Manufacturers'  Association  began  reporting  one  species  of  wood 
only,  namely  oak,  which  was  most  widely  produced.  This  was 
in  1917.  By  1919  practically  all  the  southern  hardwoods  of  any 
importance  were  being  reported.14  Some  industries  probably 
never  can  be  standardized  sufficiently  to  permit  all  of  their  prod- 
ucts to  be  reported.  It  would  seem  almost  impossible,  for  exam- 
ple, to  introduce  price  reporting  in  any  comprehensive  way  in 
the  dry  goods  trade,  where  styles  are  almost  innumerable. 

Among  the  class  of  manufacturers  who  cater  to  jobbers  and 
retailers  the  greatest  differences  prevail  as  to  the  amount  of 
information  that  is  exchanged.  A  few  are  so  open  in  their  ex- 
change that  each  member  knows  practically  all  about  the  busi- 
ness of  every  other  member.  (This,  of  course,  could  only  be 
true  of  some  of  the  smaller  associations.)  Others  do  little  more 
than  exchange  price  lists.  The  reporting  system  may  be  the 
simplest  imaginable  or  it  may  be  extremely  elaborate.  The  Ohio 
State  Millers'  Association,  for  example,  only  requires  its  mem- 
bership to  fill  out  a  card  once  a  week,  indicating  the  sales,  out- 
put, and  purchases  for  the  week,  and  stock  on  hand  at  the  time 
of  reporting.  All  that  a  small  group  of  lumbermen  in  Mississippi 
do  is  to  mail  to  their  statistical  bureau  in  Hattiesburg  a  typewrit- 
ten carbon  copy  of  the  orders  received  for  the  day.  The  secretary 
sends  out  at  irregular  intervals  a  mimeograph  statement  of  the 
sales  reported.  No  other  information  is  exchanged.  In  contrast 
to  this,  the  plan  of  the  American  Hardwood  Manufacturers' 
Association  called  for,  first,  the  filing  of  a  price  list  at  the  begin- 
ning of  each  month;  second,  a  daily  report  of  sales,  to  be  an 
exact  copy  of  orders  taken;  third,  a  daily  report  of  shipments, 
to  be  an  exact  copy  of  the  invoice;  fourth,  a  monthly  report  of 
stocks,  classified  by  grade,  kind,  and  thickness;  fifth,  a  monthly 
production  report  classified  by  grades  and  thicknesses;  and  sixth, 

l3Textite  World  Journal,  Apr.  8, 1916;  Jan.  13,  1917. 

^Reporting  Plan,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Record,  Vol.  I. 
p.  81. 


239]  THE  REPORTING  PLAN  75 

inspection  reports.  The  secretary,  of  course,  compiled  this  infor- 
mation and  mailed  it  to  members  either  in  the  form  of  reports 
or  incorporated  as  a  part  of  a  weekly  bulletin.15  Enough  has 
been  said  at  this  point  by  way  of  illustration  to  indicate  the  wide 
range  of  difference  existing  between  associations  as  to  the  amount 
of  detail  that  members  report.  Further  illustrations  will  arise 
in  connection  with  the  succeeding  discussion  of  reports  in  use 
among  the  various  associations.  First  will  be  considered  reports 
in  use  in  the  exchange  of  price  information;  second,  those  used 
in  recording  cost,  trade  and  other  statistics. 

Open  price  associations  do  not  all  follow  the  same  method 
of  reporting  prices.  Each  of  them  has  sought  to  work  out  a 
method  which  would  yield  the  maximum  results  with  the  least 
expenditure  of  energy.  Most  associations,  however,  can  be  placed 
in  one  of  two  great  groups.  In  one  the  practise  is  to  exchange 
price  lists  either  between  the  members  themselves,16  or  through 
the  medium  of  the  secretary.  This  procedure  is  supplemented 
by  the  reporting  of  such  transactions  as  involve  prices  made  at 
variance  with  these  price  lists.  In  the  other  group  the  practise 
is  to  exchange  price  information  based  only  upon  actual 
transactions. 

The  associations  which  have  chosen  the  method  of  filing  a 
price  list  and  reporting  only  variations  therefrom  have  usually 
been  those  whose  products  command  a  price  which  is  stable  for 
a  comparatively  long  period  of  time,  as  is  the  case,  for  example, 
in  the  woolen  and  knit  goods  lines,  or  the  furniture  line,  where 
certain  prices  are  announced  at  the  beginning  of  the  season  and 
remain  approximately  at  those  figures  during  the  remainder  of 
the  season.  Obviously  time  and  energy  are  saved  in  avoiding 
the  reporting  of  numerous  transactions  where  prices  charged  are 
identical  with  those  shown  on  the  price  list.  On  the  other  hand, 
not  being  accustomed  to  report  all  sales,  members  are  likely  to 
neglect  to  report  such  prices  as  are  made  at  variance  with  those 

^Reporting  Plan,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Record,  Vol.  I, 
pp.  82-86. 

16Little  information  is  available  as  to  the  prevalence  of  this  practise.  Mem- 
bers of  the  National  Photo-Engravers  exchange  price  lists  among  themselves  in 
small  groups  in  certain  localities. 


76  OPEN  PRICE  ASSOCIATIONS  [240 

on  their  list.  In  order  to  avoid  this  contingency  to  some  extent, 
as  well  as  to  prevent  misunderstandings  as  to  what  may  be  the 
active  prices,  some  associations  provide  that  each  member  must 
file  a  new  price  list  at  regularly  recurring  intervals;17  others  pro- 
vide that  a  new  price  list  must  be  filed  every  time  a  member 
issues  one  to  the  trade.18 

Associations  that  are  interested  in  products  for  which  the  mar- 
ket is  a  fluctuating  one  are  likely  to  line  up  with  the  group  that 
requires  its  members  to  report  actual  transactions.  The  other 
scheme  would  not  work  well  where  the  market  is  a  fluctuating 
one  because  a  price  list  issued  one  day  might  be  obsolete  the 
next.  But  also  in  this  group  there  are  associations  that  attempt 
to  obtain  maximum  results  for  effort  expended  by  eliminating 
certain  transactions  from  their  reporting  system.  The  Linseed 
Crushers'  Council,  an  open  price  association  operating  under  the 
direction  of  the  Armstrong  Bureau  of  Related  Industries,  requires 
that  members  report  only  carload  sales.  It  is  not  felt  that  sales 
of  less  amount  have  any  material  effect  on  the  market.19  The 
Leather  Belting  Exchange  requires  its  members  to  mail  to  the 
secretary  copies  of  all  invoices,  but  only  those  above  $60.00  are 
listed  in  the  secretary's  report  to  members.20 

There  seems  to  be  very  little  variation  in  the  plans  of  such 
associations  as  provide  for  the  filing  of  price  lists.  As  previously 
intimated  they  are  filed  either  at  regular  or  irregular  intervals. 
The  Knit  Goods  Manufacturers  of  America  require  that  price 
lists  be  filed  at  least  once  every  three  months,  and  if  price  changes 
become  very  active  members  are  urged  to  file  price  lists  more 
frequently.21  Usually  price  lists  are  reported  on  specially  pre- 
pared forms.  Price  variations  are  to  be  reported  as  soon  as 
made.  Prepared  forms  are  not  so  frequently  provided  for  this 
purpose;  quite  commonly  this  information  is  simply  conveyed 

15 'Reporting  Plan,  Knit  Goods  Manufacturers  of  America,  Textile  World  Journal,. 
May  19,  1917. 

^Reporting  Plan,  Constitution,  Society  of  Manufacturing  Confectioners. 

195///  of  Complaint,  U.  S.  vs.  American  Linseed  Oil  Co.,  et  al. 

l°Spaulding,  W.  V.,  Experiences  in  Cooperative  Competition,  p.  6;  also  Tos- 
dal,  H.  R.,"Open  Price  Associations"  American  Economic  Review,  Vol.  VII,  No.  a,. 
June  17,  1917. 

^Constitution,  Art.  10,  Sec.  7. 


24l]  THE  REPORTING  PLAN  77 

by  letter.     The  secretary  immediately  relays  the  information  to 
the  other  members. 

Variation  in  practise  is  greater  among  the  associations  which 
require  reports  covering  nothing  but  actual  transactions.  Practi- 
cally all  of  the  lumber  manufacturers'  associations  require  a  daily 
report  of  sales.  In  the  case  of  the  American  Hardwood  Manu- 
facturers' Association  the  members'  daily  report  showed  all  sales 
and  cancellations  made  that  day,  and  these  reports  were  to  be 
exact  copies  of  orders  taken,  and  to  include  all  sales,  large  or 
small,  as  well  as  all  special  agreements  of  every  kind  in  reference 
to  price,  grade,  or  terms.22  The  West  Coast  Lumbermen's  Asso- 
ciation requires  that  all  sales  be  reported  daily  and  they  must 
be  consecutively  numbered  and  be  submitted  in  affidavit  form. 
Members  of  the  Northern  Hemlock  and  Hardwood  Manufactur- 
ers' Association  sign  a  weekly  statement  to  the  effect  that  they 
are  reporting  all  sales  that  have  been  made  during  the  week. 
Members  of  the  North  Carolina  Pine  Association  are  not  required 
to  sign  an  affidavit  in  connection  with  their  submittal  of  daily 
sales  reports;  they  do  not  even  sign  their  names,  but  fill  in  the 
number  by  which  they  are  identified  in  the  secretary's  office. 
In  contrast  to  this,  members  of  the  Steel  Barrel  Manufacturers' 
Association  sign  a  statement  printed  on  the  daily  sales  report 
that  reads  as  follows:  "The  report  above  is  a  true  and  com- 
plete report  of  all  sales  made  this  day,  *  *  *  which  we  pledged 
to  report  and  develops  every  feature  of  such  sale  without  any 
omissions  as  to  concessions,  rebates,  or  allowances  that  have 
been  made  either  directly  or  indirectly."  The  Armstrong  Bureau 
has  developed  an  unusual  arrangement  for  quickly  communicat- 
ing market  information  to  the  linseed  oil  manufacturers.  The 
latter  are  instructed  to  send  telegraphic  reports  of  price  changes 
to  the  bureau.  They  are  sent  in  code  in  order  to  save  expense 
and  are  immediately  relayed  to  all  members  in  coded  form. 
The  price  of  linseed  oil  moves  in  harmony  with  the  price  of 
linseed.  The  price  of  linseed  fluctuates  almost  daily.  In  order 
to  keep  properly  informed  of  the  trend  of  the  market  it  is  found 
necessary  to  report  by  telegram.  In  contrast  to  this,  members  of 

^Reporting  Plan,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  I 
p.  82. 


78  OPEN  PRICE  ASSOCIATIONS  [242 

some  associations  aim  to  keep  only  roughly  informed  of  the 
trend  of  the  market.  Members  of  the  United  States  Potash 
Producers'  Association,  for  example,  turn  in  a  combined  produc- 
tion and  sales  report  only  once  a  month.  Other  associations  are 
either  content  to  learn  only  the  approximate  trend  of  the  market 
or  sales  are  so  few  and  fluctuations  so  insignificant  that  it  is  not 
deemed  necessary  to  require  members  to  report  sales  oftener 
than  once  a  week.  Members  of  the  News  Print  Service  Bureau 
report  weekly  sales  on  a  card  about  the  size  of  a  blotter.  Export 
and  domestic  sales  are  shown  separately,  as  are  carload  and  less 
than  carload  sales. 

Respecting  the  exchange  of  price  information,  there  remains 
to  be  discussed  what  kinds  of  reports  are  submitted  by  secretaries 
to  the  membership.  Here,  too,  variations  are  very  pronounced. 
They  may  be  made  by  telegraph,23  as  previously  stated,  or  they 
may  be  mailed  daily,24  weekly,25  or  monthly,26  in  typewritten,27 
mimeographed,28  or  printed  form.29  Not  a  single  case  has  been 
found  where  the  secretary  is  permitted  to  report  the  names  of 
customers.  The  American  Hardwood  Manufacturers'  Associa- 
tion planned  to  have  this  feature,  but  it  was  not  adopted  because 
members  objected  to  divulging  the  names  of  their  customers.30 
Some  reports  show  the  approximate  destination  of  shipments. 
The  daily  sales  report  issued  by  the  secretary  of  the  Steel  Barrel 
Manufacturers'  Association  shows  the  State  wherein  the  sales  are 
made.  The  weekly  report  of  the  Ohio  Millers'  Association  shows 
the  town  or  city.  The  American  Hardwood  Manufacturers'  As- 
sociation reports  designate  the  territory  in  which  sales  are  made 

23The  Linseed  Crushers'  Council. 

MFor  instance,  Steel  Barrel  Manufacturers'  Assn.;  North  Carolina  Pine  Assn.; 
West  Coast  Lumbermen's  Assn. 

^For  instance,  Ohio  State  Millers'  Assn.;  National  Box  and  Shook  Manufac- 
turers' Assn.;  Newsprint  Service  Bureau;  American  Hardwood  Manufacturers' 
Assn. 

26For  instance,  Tool  Steel  Society. 

I7For  instance,  Lumbermen's  Statistical  Bureau. 

28For  instance,  West  Coast  Lumbermen's  Assn.;  Ohio  State  Millers'  Assn. 

"For  instance,  American  Hardwood  Manufacturers'  Assn.;  North  Carolina 
Pine  Assn. 

30Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II,  p.  1107. 


243]  THE  REPORTING  PLAN  79 

by  the  nearest  city.31  The  West  Coast  Lumbermen's  Association 
and  the  National  Box  and  Shook  Manufacturers'  Association 
reports  give  no  clue  whatever  regarding  the  destination  of  ship- 
ments. Some  reports  do  divulge  the  names  of  sellers,32  others 
indicate  the  identity  of  the  seller  by  code  number  or  letter  only,33 
and  still  others  give  no  clue  whatever  to  the  identity  of  the 
seller.34  The  secretary  alone  knows  the  identity  of  each  seller 
represented  by  a  code  number.  The  use  of  the  code  number 
does  serve  a  purpose  to  the  other  members,  however.  In  case 
conditions  surrounding  some  particular  sale  seem  to  any  member 
to  be  unreasonable,  he  is  given  the  privilege,  in  some  associations 
at  least,  of  taking  the  matter  up  with  the  secretary.  The  mem- 
ber communicates  the  code  nufnber  to  the  secretary,  who  in  turn 
will  communicate  with  the  manufacturer  bearing  this  code  num- 
ber, and  without  divulging  the  identity  of  either  the  seller  or 
the  inquirer,  report  to  the  inquirer  any  special  circumstances 
which  may  have  surrounded  the  sale  tending  to  explain  any 
unusual  conditions.35 

Secretaries  do  not  always  report  each  individual  sale  even 
tho  members  may  have  done  so.  The  secretary  of  the  West 
Coast  Lumbermen's  Association  is  furnished  with  a  daily  report 
of  sales,  but  the  report  that  he  issues  shows  the  total  volume 
of  sales,  the  low,  high,  and  the  "prevailing"  price,  covering  a 
period  of  three  or  four  days  at  a  time.38  One  secretary  reports, 
monthly,  a  list  of  "ruling  prices  that  have  been  quoted  in  the 
market."  The  secretary  of  a  society  handling  steel  products 
reports  only  the  total  number  of  pounds  of  each  kind  of  steel  sold 
at  each  price.  A  similar  scheme  is  in  use  in  an  association  of 
dyers.  Finally  certain  associations  provide  for  the  contingency 
where  manufacturers  sell  both  to  jobbers  and  retailers  by  getting 

J1See  copy  of  sales  report,  appendix,  Exh.  6. 

MFor  instance,  American  Hardwood  Manufacturers'  Assn.;  National  Chair 
Manufacturers'  Assn. 

"Steel  Barrel  Manufacturers'  Assn.;  North  Carolina  Pine  Assn. 

MFor  instance,  West  Coast  Lumbermen's  Assn.  The  National  Box  and  Shook 
Manufacturers'  Assn.  report  shows  no  names  of  sellers,  but  indicates  the  number 
of  sellers  who  have  reported. 

^Spaulding,  W.  V.,  Experiences  in  Cooperative  Competition,  p.  6. 

"See  copy  of  report  in  appendix,  Exh.  7. 


8O  OPEN  PRICE  ASSOCIATIONS  [244 

out  sales  reports  with  two  sections  to  them,  one  devoted  to  retail 
prices,  the  other  to  wholesale  prices.37 

From  the  foregoing  it  will  be  seen  that  the  exchange  of  price 
information  is  a  most  important  function  of  open  price  associa- 
tions. However,  there  are  those  who  contend  that  if  cost  systems 
could  be  standardized  so  that  each  member  might  know  his  costs 
accurately,  there  would  be  no  need  of  exchanging  price  informa- 
tion. Those  who  make  this  assertion  apparently  are  actuated 
by  the  theory  that  the  proper  price  is  that  based  on  cost  plus  a 
reasonable  profit.  Many  manufacturers  feel,  however,  that  be- 
cause of  the  recurring  waves  of  prosperity  and  depression  to 
which  the  industrial  world  is  subject,  they  must  in  times  of 
prosperity  create  a  cushion  of  profits  with  which  to  absorb  the 
losses  that  come  in  times  of  depression.  In  other  words  they 
must  at  all  times  seek  to  get  the  price  that  market  conditions 
will  permit  them  to  obtain.  Open  price  associations  are  therefore 
not  content  to  limit  their  activities  to  the  exchange  of  cost 
information. 

It  is  conceivable  that  members  might  be  able  to  obtain  the 
maximum  price  consistent  with  market  conditions  without  ex- 
changing information  about  prices,  if  statistics  of  production, 
orders,  shipments  and  stocks  could  be  assembled,  compiled,  and 
disseminated  in  such  a  way  as  to  be  representative  of  the  whole 
industry,  and  at  the  same  time  be  intelligently  acted  upon  by 
each  manufacturer  in  the  industry.  But  because  of  the  many 
difficulties  that  stand  in  the  way  of  achieving  such  a  goal,  asso- 
ciations have  been  content  to  arrive  at  an  approximate  estimate 
of  the  trend  of  the  market  by  taking  the  easier  course  of  simply 
exchanging  information  about  prices.  Many  associations  have 
as  yet  attempted  nothing  more.  Associations  that  represent  in- 
dustries in  which  the  number  of  competitors  is  comparatively 
small  succeed  best  in  gathering  trade  statistics,  because  there 
are  a  smaller  number  to  be  educated  to  an  understanding  of  the 
value  of  taking  the  time  and  trouble  to  furnish  these  statistics 
for  compilation  and  dissemination.  The  plan  of  the  American 
Hardwood  Manufacturers'  Association  called  for  a  monthly  pro- 
duction report,  but  this  feature  of  the  plan  had  to  be  abandoned 

I7This  is  done  by  the  Knit  Goods  Manufacturers  of  America,  for  instance. 


245]  THE  REPORTING   PLAN  8 1 

because  members  either  did  not  have  their  bookkeeping  so  or- 
dered that  they  could  furnish  this  information,  or  they  were 
unwilling  to  take  the  time  and  trouble  to  do  so.88 

In  discussing  reports  of  trade  statistics,  costs,  et  cetera,  con- 
sideration will  be  given,  first,  to  those  which,  when  considered  in 
relation  to  each  other,  throw  a  light  on  present  and  future  market 
conditions,  these  being  reports  of  orders,  production,  shipments, 
and  stocks;  second,  to  reports  of  costs,  and  to  reports  of  items 
which  are  elements  of  costs,  namely  reports  of  credit  information, 
purchases,  advertising,  and  wages.  This  will  complete  our  review 
of  the  main  features  of  the  reporting  plan. 

As  often  as  not,  associations  require  members  to  submit  their 
reports  of  orders,  shipments,  production,  and  stocks  in  combined 
form,  and  these  are  then  summarized  by  the  secretary  and  issued 
to  the  membership  in  combined  form.  By  bringing  figures  of 
orders,  production,  shipments,  and  stocks  into  juxtaposition  on 
one  form,  a  bird's-eye  view  of  the  general  trend  of  the  market 
is  obtained.  Of  necessity  a  report  of  this  kind  is  very  general  in 
its  purview.  If  a  product  is  divisible  into  many  species  or  grades 
some  or  all  of  which  have  a  competitive  market  all  their  own,  it 
is  probable  that  a  combined  report  would  not  be  satisfactory  un- 
less it  could  be  issued  for  each  species  or  grade,  for  a  combined 
report  could  of  necessity  not  show,  for  example,  the  orders  re- 
ceived for  each  grade,  or  the  production,  shipments  and  stocks 
of  each  grade.  In  as  much  as  the  competitive  situation  for  one 
grade  might  be  entirely  different  from  that  of  another,  it  follows 
that  a  combined  report  in  which  grades  or  species  have  no  place 
might  not  be  the  most  acceptable.  On  the  other  hand,  the  work 
entailed  in  getting  out  separate  reports,  one  of  which,  for  example, 
might  show  the  volume  of  orders  for  each  grade  or  species,  an- 
other the  production  of  each  grade  or  species,  another  the  stocks 
of  each  grade  or  species,  et  cetera,  might  be  so  great  as  to  make 
it  impracticable  to  adopt  the  system  of  individual  reports  in  its 
entirety. 

The  North  Carolina  Pine  Association  has  found  the  use  of  a 
combined  form  to  be  fairly  satisfactory  because  its  members  are 
interested  principally  in  one  kind  of  lumber,  namely  the  pine 

"Gadd,  F.  R.,  Record,  American  Column  &  Lumber  Co.  et  al.,  Vol.  II,  p.  1107. 


82  OPEN  PRICE  ASSOCIATIONS  [246 

grown  in  the  Carolinas.  But  even  in  this  case  the  report  is 
deficient  because  it  does  not  concern  itself  with  the  various  grades 
of  pine,  nor  with  the  various  thicknesses  in  each  grade.  In  an 
association  such  as  the  Hardwood  Manufacturers'  Association, 
representing  a  membership  that  produces  and  markets  more  than 
a  dozen  different  species  of  hardwood  lumber,  each  one  of  which 
has  several  grades,  all  of  which  have  several  different  thicknesses, 
it  is  manifest  that  a  combined  report  could  not  be  used  with  suc- 
cess. Members  of  the  North  Carolina  Pine  Association  report 
each  Monday  on  a  specially  prepared  form  the  total  volume 
of  orders  for  pine  that  have  been  accepted,  the  total  shipped  and 
the  total  produced  during  the  preceding  week,  all  measured  in 
feet  of  lumber.  Space  is  also  provided  for  recording  the  normal 
output  per  day.  It  is  specifically  stated  that  the  figures  sub- 
mitted will  be  held  strictly  confidential.  No  signature  is  required, 
each  reporting  member  merely  inserting  the  number  by  which 
he  is  identified  in  the  secretary's  office.  On  the  following  Thurs- 
day each  member  reporting  is  mailed  a  printed  summary  of  the 
figures  that  have  been  reported.  This  shows  the  number  of  mills 
reporting,  the  totals  and  averages  per  mill  of  orders,  shipments, 
production  and  normal  production,  the  percentage  relationship 
between,  first,  orders  and  shipments;  second,  orders  and  actual 
production;  third,  shipments  and  actual  production;  fourth,  orders 
and  normal  production;  fifth,  shipments  and  normal  production; 
sixth,  actual  production  and  normal  production.  Furthermore 
the  percentage  to  normal  of  orders,  production,  and  "shipments  is 
shown  graphically  by  the  use  of  a  form  of  barometer  originally 
used  by  the  Brookmire  Economic  Service  to  picture  fundamental 
business  and  financial  conditions.39  Finally  the  orders,  shipments, 
production  and  normal  production  as  given  by  previous  reports 
running  back  over  a  period  of  three  months  is  shown  in  columnar 
form,  thus  enabling  a  comparison  to  be  made  from  month  to 
month.  Statistics  of  stocks  have  no  place  in  this  report.  They 
are  collected  and  disseminated  only  about  once  a  year. 

Some  associations  apparently  prefer  to  substitute  in  their  com- 
bined reports  statistics  of  stocks  for  statistics  of  orders.  One 
association  issues  a  monthly  statement  of  production,  shipments, 

"See  copy  of  report,  appendix,  Exh.  8. 


247]  THE  REPORTING  PLAN  83 

and  stock,  in  which  the  statistics  for  each  are  shown  for  every 
month  covering  a  period  of  four  years.  In  addition,  each  member 
receiving  this  report  is  given  his  percentage  of  production,  ship- 
ments, and  stock  to  the  totals  for  the  association.  Since 
figures  are  lumped,  those  of  any  single  concern  are  not  known 
to  any  other  single  concern,  but,  as  just  indicated,  each  member 
is  given  his  proportion  to  the  whole.  By  comparing  this  propor- 
tion month  by  month  and  year  by  year,  every  member  can 
determine  whether  he  is  getting  the  share  of  work  that  he  is 
accustomed  to  get,  or  more  or  less,  and  he  can  determine  whether 
he  is  carrying  too  heavy  or  too  light  a  stock.40 

A  certain  association  of  chair  manufacturers  does  not  find  it 
feasible  to  gather  and  disseminate  statistics  of  production  and 
stocks.  Members  are  asked  to  submit  a  monthly  report  on  a 
specially  prepared  form  showing  in  dollars  the  total  shipments, 
total  orders  received,  total  cancellations,  and  total  unfilled  orders 
for  each  of  five  different  chair  groups  composed  of  dining  room, 
bedroom,  and  office  chairs,  rockers,  and  "miscellaneous."  With 
the  report  members  are  requested  to  transmit  a  check  to  cover 
monthly  dues,  based  on  a  percentage  of  the  total  shipments  re- 
ported. With  these  data  as  a  basis,  the  secretary  issues  each 
month  a  graphic  chart  called  a  "Monthly  Experience  Chart."  By 
means  of  graphs  the  trend  of  orders  received  is  indicated  not 
only  for  the  whole  of  the  present  year,  month  by  month,  but  for 
the  corresponding  months  of  the  year  preceding;  in  the  same 
manner  graphs  are  drawn  to  show  shipments  made  this  year, 
shipments  made  last  year,  unfilled  orders  this  year  and  unfilled 
orders  last  year,  all  by  months,  and  in  terms  of  dollars. 

In  an  association  of  sales  book  manufacturers  the  secretary 
issues  a  monthly  report  showing,  not  only  production  and  order 
statistics,  but  the  number  of  quotations  that  have  been  filed  at 
variance  with  price  lists  and  the  number  who  have  sold  below 
their  price  lists.  Aside  from  the  notation  of  the  special  quotations 
filed,  and  the  sales  below  list,  the  following  information  is  given 
in  columnar  form:  first,  percent  actual  quantity  production  to 
normal;  second,  percent  actual  value  production  to  normal;  third, 
percent  actual  quantity  sales  to  normal;  fourth,  percent  actual 

40Babson,  R.  W.,  Reports  on  Cooperation,  No.  C.  C-7. 


84  OPEN  PRICE  ASSOCIATIONS  [248 

quantity  books  sold  new  users  to  total  sold;  fifth,  time  required 
to  complete  unfilled  orders  and  contracts.  The  arrangement  is 
such  that  these  data  appear  for  each  member,  but  members  are 
designated  by  number  only.  Below  these  data  is  a  comparative 
table  showing  this  information  by  averages  for  the  past  year 
according  to  months.41 

Production  and  shipment  statistics  are  frequently  combined  in 
one  report.  In  the  lumber  industry  it  is  customary  to  issue  a 
monthly  report  of  cut  and  shipments.42  One  association  makes 
a  graphic  record  of  orders  received,  production  and  shipments, 
showing  by  means  of  lines  the  comparative  trend  in  percentages 
by  months.43 

A  sufficient  number  of  illustrations  have  been  given  to  show 
that  there  is  little  uniformity  in  the  arrangement  of  the  contents 
of  these  combined  reports.  Each  industry  has  apparently  sought 
to  develop  a  form  that  would  best  meet  its  peculiar  requirements. 

Individual  reports  of  orders,  production,  shipments  and  stocks 
appear  to  be  less  frequently  used  than  the  combined  form  of 
report.  Undoubtedly  the  combined  form  of  report  makes  the 
strongest  appeal  to  the  average  business  man  because  it  gives 
him  at  a  glance  a  perspective  of  the  whole  industry  that  he  cannot 
obtain  from  a  perusal  of  individual  reports  except  by  correlating 
them  in  his  own  mind,  a  task  that  is  often  regarded  as  being  too 
irksome  to  undertake. 

A  common  form  of  individual  report  submitted  by  secretaries 
to  show  the  periodic  relationship  between  volume  of  sales  is  de- 
scribed in  one  of  the  bulletins  on  cooperation  published  by  Bab- 
son's  Statistical  organization.44  Two  columns  of  percentages  are 
given.  One  column  shows  the  percentage  of  sales  made  by  all 
members  for  the  month  reported,  of  sales  made  by  all  members 
for  the  same  month  of  the  preceding  year;  the  other  column  shows 
the  percentage  of  sales  made  by  all  members  from  the  beginning 
of  the  year  to  and  including  the  month  of  the  report,  and  of  sales 

"See  copy  of  report,  appendix,  Exh.  9. 
tfSee  an  illustration,  American  Lumberman,  Feb.  10,  1912. 
43For  copy  of  report  see  Naylor,  E.  H.,  Trade  Associations,  New  York,  1921,  p. 
260. 

"Babson,  R.  W.,  Bulletins  on  Cooperation,  C.-C.  11. 


249]  THE  REPORTING  PLAN  85 

made  by  all  members  for  the  same  period  of  the  preceding  year. 
The  Optical  Manufacturers'  Association  compiles  a  weekly  report 
of  orders.45  Once  every  three  months  a  tool  steel  society  issues 
a  blueprint  which  shows  diagrammatically  for  each  kind  of  steel 
the  total  volume  of  orders  received  in  pounds  for  each  month  of 
the  preceding  three  months.  The  diagrams  show  at  a  glance 
whether  orders  have  been  increasing  or  diminishing. 

Statistics  of  production  are  usually  assembled  with  other  statis- 
tics in  a  combined  form.  However,  a  society  handling  drill  and 
reamer  products  does  issue  a  form  based  on  the  percentages  of 
operation  as  reported  by  the  membership,  showing  the  average 
percentage  of  operation  for  the  month  as  compared  to  normal  as 
well  as  that  for  the  month  preceding,  together  with  the  increase 
or  decrease  in  percentage. 

Stock  reports  may  be  very  simple,  as  in  the  case  of  the  Salt 
Producers'  Association,  which  divides  salt  into  but  four  grades, 
or  they  may  be  very  complex,  as  in  the  case  of  the  American 
Hardwood  Manufacturers'  Association,  whose  membership  pro- 
duces from  fifteen  to  twenty  different  species  of  lumber  each  one 
of  which  is  divided  into  several  grades,  and  each  of  the  grades 
being  divisible  into  several  thicknesses.  Members  of  the  Ameri- 
can Hardwood  Manufacturers'  Association  were  required  to  sub- 
mit a  monthly  report  showing  the  totals  of  all  grades,  thicknesses 
and  kinds,  and  this  information  was  redistributed  monthly  by  the 
secretary.  The  secretary's  report  showed  only  totals,  the  quan- 
tities in  the  hands  of  individual  manufacturers  not  being  indi- 
cated.46 Several  of  the  other  lumber  manufacturers'  associations 
distribute  monthly  stock  reports.47  As  early  as  1913  the  North 
Carolina  Pine  Association  inaugurated  a  scheme  calculated  to 
prevent  the  market  from  being  unduly  depressed  by  the  presence 
of  surplus  stocks.  Members  report  their  list  of  surplus  stocks  to 
the  secretary,  who  in  turn  circulates  the  list  among  the  member- 
ship for  the  purpose  of  enabling  members  to  buy  up  surpluses 

^Gaunt,  E.  H.,  Cooperative  Competition,  p.  20. 
**See  copy  of  stock  report,  appendix,  Exh.  10. 

47The  Northern  Hemlock  and  Hardwood  Manufacturers'  Assn.  began  report- 
ing stocks  in  1914,  and  the  Yellow  Pine  Assn.  (now  Southern  Pine  Assn.)  in 


86  OPEN  PRICE  ASSOCIATIONS  [250 

before  having  them  thrown  on  the  market  to  depress  it.48 
If  the  limited  information  available  may  be  taken  as  an  index, 
exchange  of  data  dealing  with  purchases  is  not  very  prevalent. 
Probably  it  is  as  much  to  the  advantage  of  members  to  have 
reports  of  purchases  as  it  is  to  have  reports  of  sales.  They  can 
lose  as  much  money  through  ignorance  of  conditions  surrounding 
the  purchase  of  raw  materials  as  they  can  through  ignorance  of 
the  market  conditions  surrounding  the  sale  of  their  finished  goods. 
The  Salt  Producers'  Association  exchanges  information  every 
month  as  to  the  number  of  tons  of  salt  purchased  by  members. 
Members  of  the  National  Association  of  Box  Manufacturers  ex- 
change information  monthly  relative  to  purchases  of  box  lumber. 
The  quantity,  description,  price,  f.  o.  b.  point,  and  the  concerns 
from  whom  purchased  are  given.49  Usually  the  compiled  reports 
of  purchases  submitted  by  the  secretary  to  the  members  do  not 
give  the  member's  or  seller's  names,  or  any  details  of  the  purchase, 
but  merely  state  what  the  articles  are,  the  quantities  purchased, 
and  the  prices  paid.80 

There  appears  to  be  little  interchange  of  information  bearing 
on  the  cost  of  labor.  The  workers  themselves  have,  in  many 
quarters,  through  their  labor  organizations  obtained  more  exact 
information  as  to  wages  and  working  conditions  than  have  their 
employers.51  The  National  Association  of  Box  Manufacturers  ex- 
changes information  once  a  month  as  to  the  hourly  rate  of  wages 
paid  for  the  various  classes  of  labor  in  use.  The  rate  paid  for 
overtime  and  the  number  of  hours  per  day  that  factories  are 
running  are  also  given.62 

The  work  done,  not  only  by  open  price  associations,  but  by  the 
ordinary  trade  associations,  in  cooperative  advertising  is  so  well 
known  that  it  scarcely  needs  to  be  mentioned  here.  Suffice  it  to 
say  that  associations  are  doing  a  great  deal,  not  only  in  the  way 
of  popularizing  the  products  which  they  sponsor,  but  also  by  de- 

*8The  American  Lumberman,  Oct.  24,  1913,  p.  46. 

"See  copy  of  report,  appendix,  Exh.  n. 

50Naylor,  E.  H.,  Trade  Associations,  p.  266. 

"Garside,  A.  H.,  The  Value  of  Statistical  Reports  in  Business.  Address  before  the 
annual  convention  of  the  Knit  Goods  Manufacturers  of  America,  May  20,  1920, 
p.  4. 

"See  copy  of  wage  report  submitted  by  members,  appendix,  Exh.  12. 


THE  REPORTING  PLAN  87 

termining  the  relative  merits  of  the  various  advertising  media 
and  effectively  removing  such  abuses,  for  example,  as  "padded" 
subscription  lists.83 

The  interchange  of  cost  information  is  a  very  vital  part  of  open 
price  work.  It  is  done  on  the  theory  that  ignorance  of  costs  is 
greatly  responsible  for  the  ruinous  cutting  of  prices;  that  when 
members  know  their  costs  they  will  quote  prices  intelligently.54 
Mr.  Belt,  at  one  time  Chief  Accountant  for  the  Federal  Trade 
Commission,  in  an  address  before  a  group  of  hardwood  lumber 
manufacturers,  stated,  "It  is  generally  admitted  that  ruinous 
prices  are  due  more  to  the  fact  that  manufacturers  do  not  know 
what  their  actual  costs  are  than  to  their  desire  to  sell  at  prices 
which  do  not  yield  fair  returns  on  the  money  invested."  He 
further  stated  that  the  Federal  Trade  Commission  in  its  work 
had  found  that  a  majority  of  the  business  failures  were  attribu- 
table to  poor  accounting  and  inadequate  business  information.65 

In  order  to  compare  costs,  it  is  necessary  that  all  members 
have  a  uniform  method  of  figuring  costs.  This  does  not  mean 
that  certain  cost  figures  are  to  be  imposed  upon  members;  it 
means  that  they  are  to  use  their  own  figures,  but  in  arriving  at 
those  figures  the  same  method  is  to  be  used.  In  order  to  get 
uniformity  of  method,  it  is,  of  course,  necessary  that  the  associa- 
tion take  the  initiative  in  working  out  a  system  of  uniform  ac- 
counts suitable  for  the  industry.  Usually  a  committee  taken  from 
the  membership  is  put  in  charge  of  developing  a  system.  The 
committee  generally  hires  a  cost  accountant  to  study  the  industry 
and  to  do  all  the  detailed  work.  He  sometimes  visits  the  plant 
of  every  member  of  the  association  in  order  to  learn  wherein 
methods  of  operation  vary  and  wherein  they  are  alike,  so  that 
a  system  may  be  installed  which  will  be  sufficiently  flexible  to- 
be  adaptable  to  all  plants.  It  is  generally  found  advisable  to 
make  the  system  as  simple  as  possible,  for  members  will  not  be 
prevailed  upon  to  install  one  that  is  so  intricate  in  its  operation 
that  they  cannot  understand  it.  Once  having  established  costs 

"Babson,  R.  W.,  Reports  on  Cooperation,  C.  C-!i. 
MGaunt,  E.  H.,  Cooperative  Competition,  p.  28. 

"Address  before  the  Hardwood  Manufacturers'  Association  of  the  United  States, 
Jan.  30,  1917,  /fmerican  Lumberman,  Feb.  3,  1917. 


88  OPEN  PRICE  ASSOCIATIONS  [252 

on  a  comparable  basis,  members  are  in  a  position  to  discuss  them 
intelligently  in  meetings  and  through  the  medium  of  the  secre- 
tary. For  several  years  the  exchange  of  costings  has  been  going 
on  among  lumber  manufacturers'  associations.56  A  common 
method  of  exchanging  costings  has  been  for  members  to  submit 
cost  sheets  showing  costs  for  the  leading  items  of  production 
whereupon  the  secretary  has  averaged  these  costs,  mailing  to  each 
member  reporting  a  statement  of  average  costs.57 

A  form  of  activity  in  which  all  of  the  associations  organized  by 
Mr.  Eddy  are  engaged  is  the  interchange  of  credit  information. 
Other  associations  have  made  little  progress  along  this  line.  No 
doubt  so  little  headway  has  been  made,  first,  because  of  the 
existence  of  credit  men's  associations,  to  which  most  members 
probably  belong;  second,  because  of  the  fear  of  the  average 
business  man  that  competitors  will  discover  the  identity  of  his 
customers  through  the  instrumentality  of  such  an  exchange. 
Credit  men's  associations  are  made  up  of  non-competitors.  Of 
necessity  such  an  association  can  not  furnish  each  member  with 
as  intimate  a  knowledge  of  a  customer's  credit  standing  as  can 
an  organization  made  up  of  members  in  the  same  line  of  trade. 
Such  a  vital  matter  as  learning  how  much  credit  has  already  been 
granted  to  a  customer  can  not  very  easily  be  ascertained  by  a 
credit  association  made  up  of  non-competitors;  but  the  secretary 
of  an  open  price  association  can  give  this  information  because  he 
has  probably  requested  each  member  to  advise  him  how  much 
credit  he  has  already  extended  to  each  of  his  customers  and  what 
the  credit  limit  is  of  each  customer. 

One  open  price  association  asks  its  members  to  check  such  of 
the  following  as  are  applicable  to  each  of  their  customers  and 
mail  the  form  to  the  secretary,  whereupon  he  bulletins  it  to  the 
other  members  or  refrains  from  doing  so  if  the  reporting  mem- 
bers so  request: 

1.  Accounts  overdue. 

2.  Refused  statement. 

MFor  copies  of  cost  reports  submitted  by  members  of  the  North  Carolina  Pine 
Association  and  cost  statements  submitted  by  the  secretary  to  the  membership, 
see  appendix,  Exhs.  13  and  14. 

"American  Lumberman,  May  I,  1915. 


253J  THE  REPORTING  PLAN  89 

3.  Refused  to  accept  delivery. 

4.  Took  excessive  discount. 

5.  Slow  pay. 

6.  Draft  not  honored. 

7.  Note  or  check  protested. 

8.  Transferred  real  es-tate. 

9.  Closed  by  sheriff. 

10.  Has  sold  out. 

11.  Has  requested  extension. 

12.  Judgment  entered  against. 

13.  Has  had  fire. 

14.  Has  made  assignment. 

15.  Is  in  bankruptcy. 

16.  Condition  improved. 

17.  Account  satisfactory. 

18.  Cancelled  order  without  authority. 

19.  Returned  merchandise  without  permission. 

20.  Made  unjust  claim  of  shortage,  of  condition,  of  quality, 

etc. 

21.  Deducted  discount  to  which  not  entitled. 

22.  Account  collected  by  attorney  or  agency. 

23.  Account  paid  by  installments. 

24.  Has  given  chattel  or  real  estate  mortgage. 

25.  Has  given  bill  of  sale  or  trust  deed. 

In  addition  members  are  requested  to  give  the  name,  address, 
and  business  of  the  customer,  the  period  of  time  that  the  cus- 
tomer's account  has  been  on  the  books,  the  maximum  credit  ex- 
tended, and  the  present  condition  of  the  account. 


CHAPTER  VI 

THE  ADVANTAGES  AND  DISADVANTAGES  CONNECTED  WITH 
OPEN  PRICE  WORK 

The  plan  of  this  chapter  will  be  to  consider  in  the  first  part  the 
advantages  attending  the  operation  of  the  open  price  system,  and 
in  the  second  part,  the  disadvantages  involved,  first,  in  the  attempt 
to  install  an  open  price  system;  second,  in  the  operation  of  such 
a  system.  In  both  parts,  the  aim  will  be  not  only  to  discuss  the 
general  advantages  and  disadvantages  that  inure  from  the  opera- 
tion of  the  open  price  association  as  a  whole,  but  to  pay  some 
attention  to  the  particular  difficulties  or  benefits  flowing  from  each 
phase  of  its  work.  Because  of  the  newness  of  the  open  price 
movement  very  little  data  have  as  yet  been  accumulated  which 
might  throw  any  light  on  the  attitude  of  buyers,  whether  they 
be  engaged  in  buying  for  resale  or  in  buying  for  purposes  of  con- 
sumption.1 Probably  insufficient  time  has  passed  for  sentiment 
to  be  crystallized,  one  way  or  the  other.  The  writer  is  therefore 
constrained  to  write  this  chapter  principally  from  the  point  of 
view  of  the  member  of  the  open  price  association,  altho  not 
entirely  so.  Some  discussion  will  be  devoted  to  an  elucidation  of 
the  point  of  view  of  purchasers. 

ADVANTAGES 

From  the  point  of  view  of  the  member,  all  benefits  of  open 
price  work  may  be  said  to  be  derived  from  the  operation  of  two 
factors,  namely,  first,  the  building  up  of  the  spirit  of  cooperation; 
second,  the  interchange  of  information.  Some  secretaries  have 
expressed  to  the  writer  their  opinion  that  the  development  of  the 
former  element  is  the  more  important.  Probably  neither  one  is 
more  important  than  the  other.  About  all  that  can  be  truthfully 

HTlie  benefit  to  the  consumer  from  the  conservation  of  timber  due  to  the  opera- 
tion of  the  open  price  system  is  discussed  in  ch.  7,  pp.  148-156. 

90 


255]  ADVANTAGES  AND  DISADVANTAGES  91 

said  is  that  there  must  be  a  certain  degree  of  the  cooperative 
spirit  developed  before  members  are  willing  to  interchange  infor- 
mation fully  and  freely.  A  concrete  illustration  of  the  attitude 
that  is  developed  between  competitors  by  the  preaching  of  cooper- 
ation, by  frequent  contact  in  meetings  and  the  like  is  afforded  by 
the  testimony  of  Mr.  Smith,  President  of  the  Union  Steel  Casting 
Company,  in  the  Steel  Case:2 

Q.  "Now  what  is  the  difference,  if  any,  in  the  attitude  of 
competitors  in  your  line  toward  one  another  from  the  condition 
that  prevailed  fifteen  years  ago?"  A.  "We  are  honestly  friends 
now.  Then  we  pretended  to  be  friends,  but  were  the  bitterest 
enemies." 

Q.  "Can  you  give  any  illustration  of  that?"  A.  "Yes,  sir. 
Perhaps  a  year  and  a  half  ago  or  two  years  ago  we  were  in  diffi- 
culty in  making  driving  wheel  centers  for  the  American  Loco- 
motive Company  people.  They  complained  about  it,  and  I 
personally  went  there.  I  knew  what  caused  them.  We  had  to 
use  anchors  to  carry  the  core.  I  found  out  what  their  complaint 
was;  asked  them  if  anybody  was  furnishing  driving  wheel  cen- 
ters without  that  difficulty.  They  said  the  Pratt  &  Letchworth 
Company  of  Buffalo  furnished  them  without  the  hard  spots.  I 
went  to  Buffalo  and  told  Pratt  &  Letchworth  Company  of  our 
difficulty  and  asked  them  how  they  avoided  it.  They  showed 
me  a  new  kind  of  anchor  they  had,  which  did  not  make  hard 
spots,  gave  me  samples  of  them,  and  I  got  the  same  kind  and 
had  no  further  trouble.  While  I  was  there  they  told  me  that 
they  had  some  difficulty  with  the  sand,  that  their  castings  did 
not  clean  as  well  as  ours,  and  wanted  to  know  the  trouble.  I, 
of  course,  gave  them  all  the  help  I  could  and  told  them  that 
they  were  not  grinding  it  enough,  and  stayed  with  them  for  about 
half  a  day,  and  they  got  better  results  from  their  sand,  and  we 
had  no  more  hard  spots  in  our  wheel  centers.  We  visited  each 
others'  plants  for  the  purpose  of  improving  our  condition,  and 
have  no  hesitancy  in  helping  each  other  when  we  can." 

Obviously  where  coooperative  efforts  are  directed  toward  mu- 
tual helpfulness  in  improving  industrial  processes  the  benefit  re- 

,  U.  S.  vs.  United  States  Steel  Corporation,  Vol.  XX,  pp.8o68-8o69. 


92  OPEN  PRICE  ASSOCIATIONS  [256 

dounds  not  only  to  the  competitors  involved  but  to  the  consumer.3 
A  good  illustration  of  the  cooperative  spirit  developed  in  meet- 
ings is  afforded  by  the  following  extract  taken  from  the  affidavit 
of  a  hardwood  Manufacturer  belonging  to  the  American  Hardwood 
Manufacturers'  Association: 

"The  fall  and  winter  of  1918  found  us  with  a  large  accumula- 
tion of  stocks  on  hand  in  thoroly  dry  condition,  and  we 
found  that  it  was  difficult  to  move  them  at  the  prices  we  were 
asking.  This  condition  continued  through  the  earlier  part  of 
1919,  and  in  spite  of  our  repeated  sales  effort,  we  did  not  secure 
any  business  for  Red  Gum  as  well  as  some  other  items.  There- 
fore at  a  group  meeting  at  Memphis,  when  market  conditions 
were  being  discussed,  I  found  that  my  competitors  had  been 
selling  their  Red  Gum  freely.  I  advised  the  group  that  I  had 
been  unable  to  move  our  Red  Gum  and  that  we  had  an  accu- 
mulation of  the  stock  above  normal.  It  developed  that  my  com- 
petitors had  been  able  to  move  their  stocks  because  their  prices 
were  considerably  lower  than  ours.  Shortly  following  this  meet- 
ing, owing  to  our  insistent  efforts  to  place  before  the  consum- 
ing trade  of  the  country  our  Red  Gum  stock,  we  commenced 
to  receive  a  good  many  inquiries  and  this,  in  part,  as  a  result  of 
the  fact  that  our  competitors  who  were  at  the  group  meeting 
where  I  stated  we  had  this  stock,  informed  their  customers  that 
we  could  supply  their  needs.  *****  The  fact  that  these  group 
meetings  develop  a  spirit  of  good  fellowship,  whereby  my  com- 
petitors are  willing  to  advise  a  buyer  that  a  common  competitor 
can  furnish  stock  that  they  do  not  happen  to  have,  is  of  great 
value  to  me."4 

Members  interchange  information  in  order  to  learn  as  closely 
as  possible  all  the  factors  that  have  a  bearing  on  the  market 
for  their  product.  If  they  lack  knowledge  of  the  market  they 
are  prevented,  first,  from  properly  regulating  their  business  in 
conformity  with  business  conditions;  second,  from  securing  the 
highest  price  for  their  product  that  market  conditions  warrant. 

3For  an  account  of  the  growth  of  the  cooperative  spirit  in  the  New  Bedford 
Open  Price  Association,  see  New  York  'Journal of 'Commerce,  May  1,1916.  £- 

*Weiss,  H.  B.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  Ill,  p. 
1667-8. 


257]  ADVANTAGES  AND  DISADVANTAGES  93 

In  one  sense  the  small  producer  may  be  said  to  receive  the 
greater  benefit  from  the  interchange  of  information,  because  of 
the  fact  that  the  large  producer  with  his  large  organization  is 
in  a  better  position  to  gather  information  for  himself  through 
his  salesmen  and  by  other  means  than  is  the  smaller  producer,  who 
in  many  instances  does  not  even  have  a  traveling  salesman  in  his 
employ.  This  is  strikingly  brought  out  in  the  case  of  the  small 
mill  owners  who  belonged  to  the  American  Hardwood  Manufac- 
turers' Association.  Mr.  Boyle,  attorney  for  the  association,  in 
his  argument  before  the  Supreme  Court  stated  that  of  the  forty- 
eight  letters  which  the  Manager  of  Statistics  of  the  association 
received,  commending  open  price  work  that  was  being  done, 
all  of  those  that  indicated  that  a  better  price  had  been  received 
in  one  instance  or  another  as  a  result  of  the  operation  of  the 
open  price  system,  were  from  small  mills  without  a  sales  organi- 
zation.5 Numerous  affidavits  from  small  mill  owners,  taken  in 
the  case,  point  to  the  same  conclusion.  The  following  is  typical: 

"As  an  operator  of  a  comparatively  small  mill  which  main- 
tains no  sales  force,  he  found  these  reports  and  letters  of  great 
value  to  him.  Previous  to  belonging  to  the  association  he  was 
largely  at  the  mercy  of  the  wholesaler,  to  whom  he  has  always 
sold  the  bulk  of  his  production.  Before  joining  this  association 
and  receiving  these  reports,  in  June  1919,  he  sold  first  and  second 
quartered  white  oak  to  wholesalers  for  $88.00  per  thousand  at 
the  mill,  or  $105.00  per  thousand  in  Boston,  for  which  these 
wholesalers  obtained  from  the  consumers  the  prevailing  price 
of  $250.00  per  thousand.  This  condition  of  ignorance  of  condi- 
tions worked  a  hardship  on  him  and  was  of  no  benefit  whatever 
to  the  consuming  public,  the  wholesaler  reaping  all  the  profit 
on  the  transaction. 

"That  a  small  producing  mill  without  a  sales  organization 
cannot,  under  present  conditions,  intelligently  do  business  unless 
through  some  association  or  other  means  that  keeps  him  in 
touch  with  market  conditions.  In  his  opinion,  the  Open  Com- 
petition Plan  has  been  of  great  benefit  to  the  small  producing 

^Argument  of  L.  C.  Boyle  in  the  Supreme  Court  of  the  United  States,  American 
Column  &  Lumber  Company  vs.  U.  S.,  Oct.  21,  1920,  p.  68. 


94  OPEN  PRICE  ASSOCIATIONS  [258 

mills  and  has  worked  no  hardship  whatever  on  the  consuming 
public."6 

Mr.  F.  B.  Dabolt,  a  small  mill  owner,  gave  the  following  sworn 
statement: 

"He  received  the  sales  report  of  the  Open  Competition  Plan 
and  found  these  reports  of  great  use  in  keeping  him  informed 
as  to  the  trend  of  the  market.  This  information  was  of  value  to 
him  in  enabling  him  to  gauge  the  worth  of  his  lumber,  *****. 
The  information  contained  in  these  sales  reports  was  of  special 
value,  for  the  reason  that  his  firm  travels  no  men  and  has  no 
sales  organization,  and  unless  he  had  access  to  these  sales  reports 
he  would  have  been  obliged  to  have  obtained  this  information 
at  considerable  trouble  and  expense,  or  else  have  depended  en- 
tirely on  the  statements  of  buyers  as  to  the  market  value  of  his 
product.  In  that  way  these  sales  reports  were  of  practical  and 
financial  value  to  him.7 

In  another  sense  the  large  producer  profits  perhaps  just  as 
much  as  the  small  producer  through  the  operation  of  a  system 
that  makes  his  small  rival  a  more  intelligent  competitor,  for  the 
latter  is  then  not  so  likely  to  "spoil"  the  market — at  least  so 
runs  the  argument — and  in  so  far  as  price  cutting  is  due  to 
ignorance  of  the  market  and  not  to  financial  instability  or  other 
causes,  it  is  probably  valid.  A  small  producer  can  do  more 
damage  to  the  market  than  the  volume  of  his  production  would 
seem  to  give  him  the  power  to  do  because  he  can  make  quota- 
tions equivalent  to  many  times  the  value  of  his  production. 
Furthermore  large  producers  are  learning  that  little  consolation 
is  to  be  sought  in  the  fact  that  competitors  who  quote  inordinately 
low  prices  simply  because  they  are  not  posted  on  market  con- 
ditions, usually  go  bankrupt,  for  in  nearly  every  case  they  are 
replaced  by  another  crop  of  small,  weak  competitors,  who  will 
also  "muddy  the  water." 

The  large  producer  feels,  then,  that  the  only  remedy  for  a 
situation  of  this  kind,  short  of  combination  or  consolidation,  is 
to  educate  the  small  competitor.8 

6  Brief  for  the  Appellants,  American  Column  &  Lumber  Company  vs.  U.  S., 
Part  2,  p.  68. 

''Ibid.,  Part  1,  p.  93. 

8New  York  Journal  of  Commerce,  Jan.  3,  1916.     Mr.  Belt,  at  one  time  Chief 


259]  ADVANTAGES  AND  DISADVANTAGES  95 

It  might  be  inferred  from  the  foregoing  that  because  of  his 
facilities  for  gathering  information  the  large  producer  derives 
little  direct  benefit  from  the  operation  of  the  open  price  associa- 
tion. It  is  true  that  he  may  feel  no  need  for  price  information 
because  of  reports  received  from  salesmen,9  but  he  can  learn 
little  about  the  status  of  production,  stocks,  costs,  et  cetera,  in 
the  industry  unless  he  exchanges  information  with  his  competi- 
tors. One  consequence  will  be  the  lack  of  vital  business  statistics  on 
which  to  base  his  production  policy.  But  even  sales  reports 
might  be  of  value,  if  for  nothing  else,  as  least  as  a  check  on 
the  statements  of  salesmen.  Salesmen,  who  in  their  eagerness 
to  make  a  sale  have  quoted  a  particularly  low  price,  contrary 
to  the  instructions  that  may  have  been  given  them,  are  wont 
to  excuse  their  action  on  the  ground  that  they  were  forced  to 
make  this  price  in  order  to  meet  that  made  by  another  competi- 
tor. Reference  to  sales  reports  will  often  show  whether  or  not 
the  excuse  has  any  foundation  in  fact.  If  it  has  not,  as  is  often 
the  case,  a  repetition  of  needless  price  cutting  on  the  part  of 
salesmen  seeking  to  make  easy  sales  can  be  prevented,  with  a 
consequent  saving  of  money.10  Furthermore,  in  cases  where  sales- 
men have  been  spending  considerable  time  in  ascertaining  market 
conditions,  the  use  of  sales  reports  would  make  this  activity  less 
necessary,  thus  permitting  salesmen  to  devote  more  attention  to 
selling.11 

There  is  scarcely  anything  written  or  said  about  the  open  price 
plan  that  does  not  stress  the  value  of  open  price  work  in  pre- 
venting purchasers  from  perpetrating  frauds  upon  the  producer 
or  otherwise  overreaching  him.  This  may  be  considered  one  of 
the  leading  arguments  for  the  plan  and  is,  perhaps,  the  strongest 

Accountant  for  the  Federal  Trade  Commission,  once  said:  "The  best  price  tonic 
I  know  of  is  an  educated  competitor."  Address  before  the  American  Hardwood 
Manufacturers'  Association  of  the  United  States.  Jan.  30,  1917.  American 
Lumberman,  Feb.  3,  1917. 

'Many  manufacturers  of  hardwood  lumber  stated  that  they  felt  no  need  for 
sales  reports  because  they  employed  salesmen  who  kept  them  in  touch  with  the 
market.  See  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  Ill,  p.  1508. 

10For  illustration  of  the  use  of  sales  reports  as  a  check  on  information  received 
from  the  sales  force  see  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol. 
Ill,  p.  1921. 

"Textile  World  Journal,  April  8,  1916. 


96  OPEN  PRICE  ASSOCIATIONS  [260 

one  offered  in  justification  of  its  existence.  The  practise  among 
buyers  of  misrepresenting  the  prices  quoted  to  them,  playing 
one  competitor  off  against  the  other,  in  order  to  "beat  down 
prices"  or  obtain  secret  rebates  or  discounts  or  other  favors  has 
become  so  common  that  it  is  scarcely  looked  upon  as  an  ille- 
gitimate trade  practise  any  longer.12 

In  the  contracting  world  owners  misrepresent  the  nature  of 
the  bids  received,  leaving  the  impression  among  those  who  have 
submitted  bids  that  theirs  is  not  the  lowest,  the  intent  being  to 
induce  them  to  submit  lower  bids,  which  they  usually  do,  unless 
they  are  informed  by  means  of  the  exchange  of  bids  as  to  the 
true  circumstances.  That  this  malpractise  has  been  given  a 
death  blow  in  industries  controlled  by  open  price  associations  is 
averred  by  all  proponents  of  the  open  price  plan.13 

By  the  interchange  of  information  the  cement  manufacturers 
have  tried  to  prevent  speculation  in  cement  coupled  with  can- 
cellation of  contracts.  Purchasers,  thinking  that  from  funda- 
mental conditions  the  price  of  cement  would  go  higher  in  the 
future  than  at  the  time  of  the  purchase,  frequently  have  at- 
tempted to  cover  a  contract  for  a  certain  building  or  other  piece 
of  construction  work  by  placing  duplicate  orders  with  different 
mills  and  then  requiring  the  entire  amount  ordered  from  all  mills 
to  be  furnished  if  it  should  turn  out  that  the  price  has  gone  up 
and  on  the  contrary  cancelling  out  on  some  pretense  or  other  if 
it  should  turn  out  that  the  price  has  gone  down.14 

Evidence  in  the  Hardwood  Case  shows  beyond  doubt  that 
wholesalers,  prior  to  the  initiation  of  the  open  price  plan,  were 
successfully  overreaching  producers  who  were  in  ignorance  of 
market  conditions,  but  that  the  operation  of  the  plan  prevented 
them  from  continuing  the  practise  among  members. 

One  member  wrote  to  the  Manager  of  Statistics  as  follows: 

"Johnson,  A.  S.,  "Review  of  New  Competition,"  by  A.  J.  Eddy,  Pol.  Sc.  Quar., 
Vol.  XXVIII,  March  3, 1913,  p.  143. 

13Mathews,  J.  W.,  Testimony  before  the  New  York  Joint  Legislative  Committee 
on  Housing,  Record,  p.  4635. 

"Harrison,  L.  C.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  Ill, 
p.  1716.  For  further  illustrations  of  malpractises  connected  with  bidding,  see 
account  of  action  taken  by  the  Bridge  Builders  &  Structural  Society,  Iron  Age, 
Vol.  XCVI,  July  i,  1915,  P-  57. 


26l]  ADVANTAGES  AND  DISADVANTAGES  97 

"From  my  experience  as  a  small  manufacturer,  this  (sales  re- 
port) is  one  of  the  most  important  services  the  association  has 
given  me.  Before  becoming  a  member  of  the  Open  Competition 
Plan,  I  know  I  have  sold  a  good  many  cars  of  lumber  three  or 
four  dollars  under  the  market  to  wholesalers,  upon  which  they 
reaped  the  benefit  of  my  ignorance."18 

In  an  affidavit  another  small  producer  made  the  following 
statement:  "Affiant  maintains  no  sales  organization  and  mar- 
kets his  products  largely  to  wholesalers,  possibly  85  per  cent  of 
his  product  being  so  sold.  For  this  reason,  the  sales  reports  of 
the  Open  Competition  Plan  were  of  especial  value  to  affiant  for 
the  reason  that  the  wholesalers  from  the  nature  of  their  business 
are  continually  in  touch  with  the  market,  and  when  purchasing 
naturally  desire  to  buy  at  as  low  a  figure  as  possible.  These 
sales  reports  were  a  check  against  their  statements.  By  virtue 
of  these  reports,  affiant  states  that  he  was  enabled  to  get  nearer 
the  market  price  from  the  wholesalers."16 

Lumber  manufacturers  have  undoubtedly  been  dependent 
upon  the  statements  of  buyers  to  an  extraordinary  degree.  Un- 
like grain,  cattle,  cotton,  and  many  other  basic  commodities, 
lumber  has  no  common  market.  There  are  no  current  price 
quotations,  no  statistics  as  to  receipts  at  consuming  points,  as  to 
production,  as  to  supplies  offered,  nor  of  prices  asked  or  bid. 
The  smaller  producers,  in  particular,  sell  nearly  all  of  their  lum- 
ber to  the  wholesaler.  By  reason  of  his  intimate  and  daily  con- 
tact with  the  consuming  trade,  the  wholesaler  has  been  in  a  far 
better  position  than  the  manufacturer  to  know  the  needs  of  the 
market,  the  market  prices,  and  all  the  facts  which  influence 
prices.  It  is  made  peculiarly  difficult  for  the  great  number  of 
smaller  manufacturers  to  get  market  information  because  of  their 
locations.  The  larger  and  stronger  concerns  have,  as  previously 
stated,  kept  in  touch  with  the  needs  of  consumption  by  means  of 
well  organized  sales  departments.17 

Undoubtedly  similar  conditions  exist  in  many  other  industries. 

"Bohlssen,  H.  C.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II, 
Exh.  No.  1138. 

"Nigh,  F.  H.,  Record,  Vol.  Ill,  p.  1670. 

"Stark,  M.  W.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  Ill, 
pp.  1247-1248. 


98  OPEN  PRICE  ASSOCIATIONS  [262 

Probably  every  industry  is  infested  with  buyers  who  profit  upon 
the  ignorance  of  producers  by  circulating  false  market  informa- 
tion. At  least  false  price  reports  are  current  everywhere,  how- 
ever they  may  have  originated,  and  in  the  absence  of  authentic 
information  such  as  open  price  associations  aim  to  give  members, 
considerable  credence  is  given  to  them.  Mr.  Belt,  at  one  time 
Chief  Accountant  for  the  Federal  Trade  Commission,  once  said, 
"It  is  unfortunate  that  false  reports  as  to  prices  quoted  by  com- 
peting houses  are  so  widely  current.  Often  false  price  reports 
are  given  credence  and  prices  are  met  which  never  existed.  This 
practise  in  the  aggregate  has  a  disastrous  effect  on  our  commer- 
cial health."  The  remedy,  according  to  Mr.  Belt,  lies  in  pro- 
ducers exchanging  information,  comparing  experiences,  and 
discussing  trade  problems.18 

The  Government  during  the  Great  War  found  the  trade  sta- 
tistics that  had  been  accumulated  by  open  price  associations  of 
immense  benefit  in  determining  the  manner  in  which  orders  for 
supplies  should  be  allocated  among  the  various  manufacturers. 
Knowing  their  productive  capacity,  it  was  comparatively  easy 
to  determine  the  size  of  the  order  that  should  be  given  to  each 
of  them.19 

Mr.  Belt,  formerly  of  the  Federal  Trade  Commission,  has  pointed 
out  that  open  price  associations  have  just  the  kind  of  information 
that  is  needed  by  the  various  governmental  bodies  interested  in 
the  affairs  of  business,  including  such  matters  as  supply,  demand, 
prices,  costs,  productive  capacity,  et  cetera.  Probably  the  manu- 
facturers who  can  show  clearly  the  needs  of  their  industry  by 
means  of  statistics  will  receive  the  most  consideration  at  the 
hands  of  bodies  dealing  with  such  matters  as  the  tariff,  freight 
rates,  and  the  like.20 

We  have  seen  what  an  important  place  reports  of  bids  and 
sales  have  played  in  preventing  purchasers  from  overreaching 
particularly  the  small  producer.  Testimony  taken  in  the  Hard- 

18Belt,  R.  E.,  Address  before  the  American  Hardwood  Manufacturers'  Associa- 
tion of  the  United  States,  American  Lumberman,  Feb.  3,  1917. 

19New  York  Journal  of  Commerce,  May  n,  1917,  May  16,  1918,  Mar.  19,  1920. 

"Belt,  R.  E.,  Address  before  the  Hardwood  Manufacturers'  Association  of  the 
United  States,  Jan.  30,  1917,  American  Lumberman,  Feb.  3,  1917. 


263]  ADVANTAGES  AND  DISADVANTAGES  99 

wood  Case  has  brought  out  the  nature  of  the  use  made  of  trade 
statistics  by  members  of  the  American  Hardwood  Manufactur- 
ers' Association.  With  regard  to  reports  of  sales  the  substance 
of  the  great  bulk  of  this  testimony  was  to  the  effect,  first,  that 
by  informing  members  of  the  relative  demand  for  the  different 
kinds,  grades,  and  thicknesses  of  hardwood  lumber,  these  reports 
enabled  them  to  adjust  their  production  to  suit  the  demand, 
thereby  avoiding  underproduction  of  some  items  and  overproduc- 
tion of  others;  second,  that  the  reports  enabled  them,  in  fixing 
their  prices,  to  follow  more  closely  and  quickly  the  general  trend 
of  prices,  whether  up  or  down,  on  the  one  hand  avoiding  sales 
at  lower  prices  than  the  condition  of  supply  and  demand  seemed 
to  warrant,  on  the  other  hand  avoiding  prices  that  seemed  higher 
than  the  average  run  of  prices,  thereby  preventing  stocks  from 
moving  too  slowly.21 

For  instance,  Mr.  F.  M.  Platter  stated,  "As  to  the  sales  report 
affiant  says  that  he  regarded  it  as  valuable  in  his  business  opera- 
tions. That  the  data  thus  furnished  tended  to  keep  him  in- 
formed as  to  the  character  of  the  stocks  that  were  most  in 
demand,  and  thereby  he  could  more  effectively  serve  consump- 
tion demands."22 

Mr.  F.  H.  Stanford  found  the  sales  reports  of  value  as  indi- 
cating the  general  trend  of  the  market.23 

Mr.  E.  A.  Lang  found  the  sales  reports  particularly  valuable 
in  determining  the  market  value  of  woods  which  were  infre- 
quently sold:  "That  such  sales  reports  are  of  some  value  to 
affiant  in  judging  the  market  price  of  small  items  of  lumbec 
which  constitute  only  a  small  percentage  of  our  production,  due 
to  the  fact  that  they  are  generally  manufactured  from  a  scatter- 
ing growth  of  timber,  and  having  only  a  few  cars  of  these  items 
to  dispose  of  from  time  to  time,  we  are  naturally  not  fully 
informed  as  to  either  the  volume  or  market  conditions  of  these 
items.  Such  information  could  doubtless  be  secured  from  other 

"Oral  argument  of  G.  Carroll  Todd  before  the  Supreme  Court  of  the  United 
States,  American  Column  &  Lumber  Co.  vs.  U.  S. 

^Flatter,  F.  M.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  Ill, 
p.  1675. 

^Stanford,  F.  H.,  Record,  Vol.  Ill,  p.  1654. 


IOO  OPEN  PRICE  ASSOCIATIONS  [264 

sources,  but  it  would  take  more  time  and  effort  to  do  so  than 
to  get  it  from  the  sales  reports  mentioned."24 

In  one  of  the  meetings  a  member  explained  the  value  of  sales 
reports  to  manufacturers  who  only  make  a  little  of  any  par- 
ticular wood.  He  stated  that  they  would  not  be  compelled  to 
sacrifice  stocks  which  they  did  not  handle  regularly  because  by 
glancing  at  the  sales  reports  they  could  ascertain  the  prices  made 
on  this  class  of  stocks  by  those  who  were  handling  it  in  large 
quantities.25 

Reference  to  sales  reports  did  not  always  result  in  members 
raising  prices.  Sometimes  they  were  lowered.  Several  manu- 
facturers, after  consulting  sales  and  stock  reports,  found  it  ad- 
visable to  lower  prices  in  certain  instances  in  order  to  move  their 
stocks  because  of  the  discovery  that  their  prices  were  out  of 
line  with  those  being  asked  by  competitors.28 

Many  members  found  sales  reports  of  greatest  benefit  when 
used  in  connection  with  the  stock  reports.  Mr.  B.  F.  Dulwever 
stated  "that  one  of  the  principal  benefits  of  the  sales  report  and 
the  stock  report  used  jointly  was  to  ascertain  the  items  that 
were  in  greatest  demand,  and  the  items  which  were  short  in 
supply,  and  he  found  these  reports  of  great  value  to  his  firm  in 
deciding  what  thicknesses  to  manufacture."27 

Another  member  found  that  these  reports  furnished  him  with 
an  incentive  to  improve  the  manufacture  of  his  lumber:  "He 
found  these  reports  (sales  reports)  of  use  in  connection  with  the 
stock  reports  in  guiding  him  along  the  manufacturing  end.  For 
instance,  if  he  found  that  certain  firms  were  getting  prices  for 
certain  grades  of  lumber  higher  than  he  could  obtain  for  the 
same  grades,  he  found  almost  invariably  that  it  was  because 
their  lumber  was  better  manufactured  and  more  strictly  graded 
and  better  care  taken  of  it  in  curing  and  in  general.  He  found 
these  reports  of  value  to  him  therefore  in  improving  the  manu- 

"I-ang,  E.  A.,  Record,  Vol.  Ill,  p.  1647. 

MMinutes  of  Meetings,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol. 
I.  Several  members  testified  to  the  value  of  sales  reports  in  determining  the 
market  price  of  small  items  of  lumber;  see  Record,  Vol.  Ill,  pp.  1647,  1656. 

"Dickinson,  C.  C.,  Record,  Vol.  Ill,  p.  1710;  Stark,  W.  M.,  Record,  Vol.  II,  p. 
1260. 

"Dulweber,  B.  F.,  Record,  Vol.  Ill,  p.  1565. 


265]  ADVANTAGES  AND  DISADVANTAGES  IOI 

facture  and  care  of  his  lumber.  He  found  the  sales  reports  also 
of  value  in  showing  what  territories  were  demanding  certain  spe- 
cies and  thicknesses  of  lumber."28 

The  stock  report  of  the  American  Hardwood  Manufacturers' 
Association  has  been  described  as  "one  of  the  most  detailed  and 
complete  statistical  reports  published  by  any  association  in  the 
world."20 

During  1919,  at  least,  members  of  this  association  placed  more 
emphasis  on  the  value  of  the  stock  reports  than  they  did  on 
sales  reports.  The  reason  for  this  was  that  in  1919  prices  rose 
so  fast  that  sales  reports  were  not  received  in  time  to  be  of 
much  value  as  a  guide  to  the  trend  of  the  market.30  The  chief 
benefit  of  stock  reports  lay  in  the  assistance  they  gave  in  deter- 
mining what  kinds  of  lumber  to  manufacture  and  the  grades  and 
thicknesses. 

Mr.  H.  B.  Weiss  testified  as  follows:  "I  have  found  this 
report  of  invaluable  assistance  to  me  in  determining  into  what 
particular  thicknesses  and  grades  to  manufacture  our  logs.  This 
is  a  problem  that  is  continually  confronting  us  because  our 
product  is  not,  as  a  rule,  sold  until  it  has  been  manufactured 
and  conditioned,  which  is  possibly  an  average  of  six  months 
after  the  material  is  sawed.  I  have  found  in  the  past  that  in  the 
absence  of  knowledge  of  stocks  in  the  hands  of  my  competitors 
I  would  instruct  our  mill  to  saw  a  certain  thickness,  only  to  find 
later  that  the  market  carried  a  burden  of  these  particular  thick- 
nesses, and  it  was  with  great  difficulty  that  they  could  be  mar- 
keted, whereas  consumers  were  in  great  need  of  some  other 
thicknesses  that  we  could  have  manufactured."31 

Mr.  M.  B.  Cooper  testified,  "that  when  the  monthly  report  of 
stocks  reached  his  desk,  he  invariably  checked  it  over  with  a 
view  of  ascertaining  as  to  what  grades  and  thicknesses  were 
piling  up  and  what  grades  and  thicknesses  were  becoming  scarce, 
and  oftentimes  he  has  changed  his  sawing  instructions  to  the  mill 
due  to  the  information  obtained  through  these  stock  reports."32 

'"Glenn,  E.  C.,  Record,  Vol.  Ill,  p.  1652. 

"Record,  Vol.  II,  p.  1064. 

"Record,  Vol.  Ill,  p.  1633. 

"Weiss,  H.  B.,  Record,  Vol.  Ill,  p.  1665. 

"Cooper,  M.  B.,  Record,  Vol.  Ill,  p.  1645. 


IO2  OPEN  PRICE  ASSOCIATIONS  [266 

It  may  be  remarked  in  this  connection  that  this  regulation 
of  output  to  conform  with  the  consumption  demands  as  revealed 
by  the  stock  report  not  only  results  in  a  benefit  to  the  manu- 
f?"turer  himself  but  also  to  the  consumer  of  lumber,  for  it  leads 
to  the  concentration  of  production  on  those  grades  and  thick- 
nesses for  which  there  is  a  heavy  demand,  instead  of  the  pro- 
duction of  grades  and  thicknesses  for  which  the  demand  is  light, 
thus  preventing  an  undue  increase  of  prices  for  such  grades  and 
thicknesses  as  are  in  demand  and  at  the  same  time  avoiding  an 
undue  depression  of  price  of  those  grades  which  are  not  in 
demand. 

Other  manufacturers  have  stressed  the  value  of  stock  reports 
in  determining  whether  to  hold  or  sell  stocks  on  hand.  In  writ- 
ing of  his  opinion  of  the  Open  Competition  Plan,  Mr.  H.  B.  Sale 
said,  "We  had,  previous  to  the  United  States  entering  the  war, 
a  customer  who  had  taken  our  production  in  Quartered  White 
Oak  Strips  but  since  the  war  his  business  has  so  materially  de- 
creased that  the  amount  of  stock  required  to  meet  his  production 
has  been  very  small.  We  are  therefore  hunting  for  a  market 
for  such  strips.  Of  course  we  could  dispose  of  these  to  almost 
any  manufacturer  at  the  ordinary  going  price,  but  have  held 
them  for  approximately  ten  months.  We  would  have  had  to 
dispose  of  them  at  a  loss  or  sold  them  at  the  going  market  price. 
We  examined  the  stock  list  carefully  and  found  Quartered  White 
Oak  Strips  in  the  hands  of  manufacturers  to  be  less  than  normal 
and  therefore  continued  quoting  on  inquiries  the  prices  which 
we  had  set  on  them  as  the  price  at  which  we  could  make  a 
profit  on  these  strips.  This  price  was  in  excess  of  the  reported 
going  price  in  the  Open  Competition  Plan,  but  we  were  quite 
satisfied  that  before  sufficient  additional  production  could  be  put 
upon  the  market  that  the  price  would  come  to  approximately 
our  price  on  the  stock.  This  arrived  today  as  evidenced  by  the 
duplicate  of  our  shipping  order  mailed  you."33 

Since  the  American  Hardwood  Manufacturers'  Association  did 
not  issue  regular  production  reports,  there  are  no  data  available 
which  would  show  how  members  might  have  used  information 
pertaining  to  production.  However,  there  are  data  to  show  in 

"Sale,  H.  B.,  Record,  Vol.  II,  Exh.  No.  1 132. 


267]  ADVANTAGES  AND  DISADVANTAGES  IO3 

the  case  of  other  lumber  associations  what  has  been  done  with 
these  and  other  reports  at  meetings,  with  a  view  of  pointing  out 
to  members  the  trend  of  market  conditions.  It  has  been  cus- 
tomary with  most  associations  of  manufacturers  to  have  a  Mar- 
ket Conditions  Committee  or  the  secretary  make  a  report  based 
on  a  comparison  between  statistics  of  stocks,  production,  orders, 
shipments,  et  cetera,  which  members  might  use  as  a  guide  to 
their  production  policy.  The  following  extract  taken  from  the 
Secretary's  report  at  the  midsummer  session  of  the  Northern 
Hemlock  and  Hardwood  Manufacturers'  Association  held  in 
July,  1912,  gives  a  clear  idea  of  the  various  advantages  flowing 
from  a  consideration  of  the  different  kinds  of  trade  statistics  in 
relation  to  one  another;  at  the  same  time  it  is  typical: 

"Last  January  there  was  12  per  cent  more  unsold  hemlock 
lumber  on  hand  than  on  January  i,  1911 — due  to  the  very  heavy 
hemlock  production  late  last  fall,  while  there  was  a  slight  de- 
crease in  hardwood  stocks.  Taken  altogether,  the  January  ist 
(1912)  reports  showed  an  increase  in  hemlock  and  hardwood 
stocks  on  hand  of  10  per  cent  over  January  ist,  1911.  The 
extraordinary  movement  of  lumber  in  the  last  six  months,  of 
this  year,  together  with  only  a  normal  production,  have  reversed 
these  figures,  so  that  on  July  ist  there  was  four  per  cent  less 
unsold  hemlock  on  hand  than  on  July  ist,  last  year,  and  28  per 
cent  less  unsold  hardwood  on  hand  than  a  year  ago.  Taking 
hardwood  and  hemlock  stocks  together,  sold  and  unsold,  the 
totals  reported  by  45  concerns  was  practically  the  same  this 
year  as  last. 

"Turning  to  our  cut  and  shipments  reports,  from  an  average 
of  more  than  70  firms  during  the  last  twelve  months,  however,  we 
find  that  during  this  period  hemlock  shipments  have  exceeded 
the  cut  by  12  per  cent  and  that  hardwood  shipments  have  gone 
beyond  production  by  7  per  cent,  making  a  total  excess  of 
shipments  over  cut  since  July  I,  1911,  of  10  per  cent.  It  is 
especially  interesting  to  note  that  stock  reports  show  45  per  cent 
less  No.  3  unsold  hemlock  on  hand  July  ist  this  year  than  on 
July  ist,  1911.  Moreover,  there  has  been  much  more  effort  on 
the  part  of  buyers  to  contract  stocks  ahead.  While  large  blocks 
of  hemlock  are  seldom  contracted,  nearly  three  times  as  much 


IO4  OPEN  PRICE  ASSOCIATIONS  [268 

hemlock  was  sold  ahead  as  on  the  first  of  July,  1911.  More- 
over, at  this  time,  60  per  cent  of  the  total  hardwood  stock  on 
hand  is  sold,  while  a  year  ago  only  50  per  cent  was  sold  ahead. 
More  lumber  was  shipped  by  the  Association  members  in  May 
than  in  any  other  month  covered  by  our  records,  while  the  June 
reports  show  but  a  slight  decrease  from  the  high  mark  set  by 
the  May  shipments.  A  summing  up  of  the  reports  by  the  same 
firms  in  the  corresponding  first  six  months  of  this  year  and  last, 
indicates  an  increase  in  hemlock  cut  of  n  per  cent,  and  increase 
in  hardwood  shipments  of  41  per  cent,  a  decrease  in  hardwood 
cut  of  13  per  cent,  an  increase  in  hardwood  shipments  of  30 
per  cent,  making  up  to  date  this  year  a  decrease  in  total  cut  of 
2  per  cent,  and  an  increase  in  total  shipments  of  37  per  cent 
over  the  corresponding  period  of  1911.  There  is  no  doubt  that 
the  total  hardwood  production  in  1912  will  be  less  than  in  1911, 
and  so  far  as  can  be  determined  the  same  will  be  true  of  the 
hemlock  cut."34 

DISADVANTAGES 

The  disadvantages  connected  with  open  price  work  may  be 
conveniently  grouped  under  the  following  heads:  first,  handi- 
caps to  the  installation  of  an  open  price  system;  second,  negli- 
gence of  members  in  the  performance  of  obligations;  third,  defi- 
ciencies in  the  reporting  system. 

The  two  chief  handicaps  to  the  installation  of  open  price 
associations  may  be  attributed  to  a  disinclination  of  business 
men  to  affiliate  themselves  with  such  an  association  and  to  the 
obstacles  offered  by  the  nature  of  the  industry  to  be  organized. 
Manufacturers  may  be  deterred  from  joining  an  open  price  asso- 
ciation for  a  number  of  reasons.  A  deep  seated  distrust  and  sus- 
picion of  their  competitors  may  suffice  to  keep  them  away,  or  a 
misconception  of  the  character  of  the  association,  or  the  expense 
connected  therewith,  or  a  fear  of  arousing  the  hostility  of  cus- 
tomers, or  of  coming  in  contact  with  the  long  arm  of  the  law. 
Speaking  of  the  difficulty  of  installing  an  open  price  association, 
a  pioneer  in  the  open  price  movement  says,  "It  has  always  proved 
exceeding  difficult  to  establish,  because  suspicion,  jealousy,  and 

^American  Lumberman,  July  27,  1912.  A  short  account  of  the  uses  of  reports 
of  costs,  purchases,  labor,  credits,  etc.,  may  be  found  in  ch.  5,  pp.  92-96. 


269]  ADVANTAGES  AND  DISADVANTAGES  IO5 

doubt  in  the  minds  of  competitors  must  first  be  done  away  with. 
*******  In  a  number  of  cases  the  plan  has  been  tried 
and  then  dropped  because  of  the  narrowminded  attitude  of  ri- 
vals."35 As  previously  intimated,  this  tendency  toward  secre- 
tiveness  has  been  particularly  noticeable  in  the  textile  field. 
The  explanation  given  has  been  that  this  business  depends  for 
its  success  to  an  unusual  degree  upon  the  individuality  in  the 
goods  produced,  competitors  being  therefore  reluctant  to  show 
competitors  the  product  of  their  looms.36 

Misconception  of  the  character  of  open  price  associations  is 
the  rule  rather  than  the  exception.  It  is  extremely  difficult  to 
convince  a  prospective  member  that  the  open  price  system  is  not 
a  price  fixing  scheme.  If  he  is  anxious  to  control  prices  he  may 
become  a  member  with  that  end  in  view.  There  are  nearly 
always  some  members  of  open  price  associations  who  are  con- 
stantly trying  to  use  the  association  as  a  means  of  stifling  com- 
petition— attempting  to  bring  about  agreements  that  will  just 
avoid  the  Sherman  Law  restrictions  and  still  gouge  profits 
unduly.31  Undoubtedly  these  abusers  of  the  open  price  system 
are  its  worst  enemies.  Business  men  who  aim  to  be  strictly 
law  abiding,  observing,  as  they  do,  the  unlawful  activity  of  these 
lawbreakers,  jump  to  the  conclusion  that  all  open  price  activity 
is  stamped  with  the  same  illegal  character  and  they  are  not  easily 
persuaded  to  join.  This  is  particularly  true  if  their  past  experi- 
ence with  price  fixing  plans  has  been  unfortunate.  One  member 
of  the  American  Hardwood  Manufacturers'  Association  expressed 
the  feeling  of  this  class  of  men  when  he  wrote  to  the  Manager 
of  Statistics  as  follows: 

"Our  experience  with  various  price  fixing  plans  in  the  early 
days  were  humiliating  and  costly,  and  for  that  reason  we  stood 
off  from  this  Open  Competition  Plan  for  some  time,  but  we 
finally  went  into  it,  the  exact  date  we  do  not  remember.38 

The  expense  involved  in  belonging  to  an  open  price  association 

*Gaunt,  E.  H.,  "An  Open  Price  Plan  for  Woolens  and  Worsteds,"  Textile 
World  Journal,  Apr.  8,  1916,  p.  1709. 

"New  York  Journal  of  Commerce,  May  22,  1919. 

"New  York  Journal  of  Commerce,  Dec.  14,  1916. 

"Nigh,  W.  H.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II, 
Exh.  No.  1127. 


IC)6  OPEN  PRICE  ASSOCIATIONS  [270 

will  prevent  some  business  men  from  affiliating.  The  cost  of 
running  such  an  association  as  estimated  by  Babson's  Statistical 
Organization  is  modest.  They  state  that  the  cost  of  organization 
began  in  one  case  with  a  fee  of  $3000.00  for  counsel,  that  the 
first  expenses  were  rather  large,  but  that  $700.00  a  month  should 
cover  all  expenses.  Of  course  this  was  written  in  1915  when  the 
price  level  was  considerably  lower  than  it  now  (1921)  is,  and 
the  figures  were  probably  given  for  an  association  with  a  mem- 
bership of  not  more  than  twenty-five.39  Notwithstanding  these 
circumstances,  the  pro  rata  expense  cannot  be  considered  unduly 
heavy  and  probably  is  not  a  serious  drawback  to  the  spread  of 
the  open  price  movement. 

The  fear  of  arousing  the  opposition  of  buyers  is,  in  some 
cases,  at  least,  a  powerful  deterrent  to  the  spread  of  the  move- 
ment. In  the  textile  industry,  in  particular,  this  opposition  has 
assumed  formidable  proportions.  In  this  field  the  opposition 
has  been  inspired  either  by  the  knowledge  on  the  part  of  buyers 
that  open  price  methods  would  prevent  them  from  making  fur- 
ther profits  as  a  result  of  the  ignorance  of  sellers,  or  it  has  been 
inspired  by  the  feeling,  fostered,  first,  by  the  secret  methods 
pursued  by  some  so-called  open  price  associations;  second,  by  the 
indiscreet  talk  of  certain  members  of  these  associations,  that  they 
were  being  made  the  victims  of  what  amounted  to  a  conspiracy 
to  maintain  prices. 

The  following  extract  taken  from  an  editorial  which  appeared 
in  the  New  York  Journal  of  Commerce,  December  14,  1916, 
pictures  the  situation  as  viewed  from  the  standpoint  of  the  buyer 
who  feels  himself  victimized:  "What  has  occurred  in  certain 
trades  is  this:  the  manufacturers  have  laid  certain  cards  on  the 
table,  but  they  are  hiding  every  detail  of  the  game  from  the 
buyers  who  are  their  customers.  This  is  a  violation  of  the  open 
price  spirit  and  gives  justification  for  a  suspicion  that  things  are 
not  in  accordance  with  the  law.  Statements  to  the  effect  that 
no  violation  of  the  law  is  intended  will  not  convince  buyers  who 
feel  that  they  are  entitled  to  know  most  of  the  influences  that 
affect  the  value  of  the  merchandise  they  want  to  buy. 

"Babson,  R.  W.,  Reports  on  Cooperation,  C.  €-3. 


271]  ADVANTAGES  AND  DISADVANTAGES  IO/ 

"Within  a  short  time  certain  manufacturers  who  are  in  trade 
organizations  have  done  considerable  boasting  as  to  what  they 
proposed  to  do  to  buyers  because  of  their  new  allegiance  to  the 
principles  of  the  open  price  movement.  A  doubt  exists  as  to 
whether  these  manufacturers  really  know  what  an  open  price 
association  can  do  and  how  easily  their  membership  in  such  a 
body,  taken  in  conjunction  with  statements  of  the  character  indi- 
cated, can  land  all  hands  in  jail."40 

The  attitude  taken  by  the  National  Association  of  Purchasing 
Agents  toward  the  open  price  movement  is  indicated  in  the  ex- 
tracts taken  from  a  letter  received  by  the  writer  which  follow: 

"The  question  came  up  indirectly  in  our  last  convention,  when 
a  proposal  was  made  that  we  organize  a  bureau  to  report  the 
orders  placed  and  prices  paid  by  our  members  in  various  locali- 
ties for  specific  commodities.  After  mature  discussion  and  later 
consideration  by  the  Executive  Committee,  it  was  decided  that 
such  a  plan  offered  prospects  of  violation  of  the  existing  laws 
against  unfair  competition  and  the  matter  was  therefore  defi- 
nitely dropped  by  our  association. 

"I  am  reasonably  confident  that  there  are  no  associations  of 
purchasing  agents  engaged  in  any  way  in  open  price  work.  On 
the  whole,  the  viewpoint  of  purchasing  agents  is  opposed  to 
such  association  activities.  The  real  function  of  the  open  price 
association,  as  we  see  it,  is  to  permit  producers  to  charge  for 
their  commodities  not  on  the  basis  of  their  production  costs  or 
real  competition  values,  but  on  a  basis  of  all  that  the  market 
will  stand.  Naturally  purchasing  agents  cannot  be  expected  to 
sympathize  with  this  viewpoint."*1 

Fear  of  Government  action  is  perhaps  the  most  powerful  de- 
terrent to  the  spread  of  open  price  work.  In  this  connection, 
Mr.  Belt,  formerly  Chief  Accountant  for  the  Federal  Trade 
Commission,  once  said,  "As  a  result  of  the  conflict  in  the  past 
between  business  men  and  the  Government,  many  business  men 
have  become  suspicious  of  cooperation  and  are  led  to  think  that 
because  some  forms  of  cooperative  effort  have  been  condemned 

"New  York  "Journal  of  Commerce,  Dec.  14,  1916. 

41Boffey,  L.  F.,  Secretary,  National  Association  of  Purchasing  Agents,  Letter 
dated  Feb.  n,  1921. 


IO8  OPEN  PRICE  ASSOCIATIONS  [2J2 

the  Government  was  opposed  to  all  forms  of  cooperation.  Un- 
fortunately, as  a  result  some  are  reluctant  about  joining  their 
trade  associations  for  fear  that  they  would  be  censured  by  the 
Government  for  meeting  with  their  competitors."42 

A  further  deterrent  is  due  to  the  weakness  of  the  voluntary 
association.  The  indiscreet  remarks  of  one  or  two  members  may 
involve  the  whole  association  in  litigation.43 

The  nature  of  the  industry  may  be  such  as  to  make  it  exceed- 
ingly difficult  to  do  open  price  work  with  any  degree  of  success. 
There  may  be  too  many  different  articles  or  styles  or  grades;  or 
the  competitors  may  be  too  numerous  and  widely  separated.  Mr. 
R.  H.  Bennett,  secretary  of  the  California  Wholesale  Grocers' 
Association,  writes  :  "With  my  wholesale  distributive  constituency 
openness  of  price  information  is  impracticable,  by  reason  of  the 
great  number  and  variety  of  articles  handled,  the  purchase  of 
fluctuating  possibilities,  and  quality  differences."44  Members  of 
the  Pennsylvania  Division  of  the  National  Association  of  Hosiery 
and  Underwear  Manufacturers  once  discussed  the  practicability 
of  adopting  the  open  price  system  but  the  project  was  abandoned 
as  sentiment  was  general  that  the  great  variety  of  styles  and 
grades  characteristic  of  the  underwear  industry  would  require 
too  complicated  a  system  to  make  it  of  any  value  to  the  mem- 
bers.46 The  American  Hardwood  Manufacturers'  Association 
found  the  effectiveness  of  its  work  exceedingly  impaired  because 
of  the  great  number  of  competitors  in  the  hardwood  industry 
and  because  of  the  fact  that  they  were  for  the  most  part  isolated 
from  one  another.  The  industry,  in  1912,  comprised  between 
12,000  and  15,000  independent  units.  These  units  were  scattered 
over  practically  the  entire  United  States  east  of  the  Mississippi 
River  and  west  of  the  Mississippi  in  the  States  of  Missouri, 


t,  R.  E.,  Address  before  the  American  Hardwood  Manufacturers'  Associa- 
tion of  the  United  States,  American  Lumberman,  Feb.  3,  1917.  The  attitude  of 
governmental  bodies  is  discussed  in  ch.  8,  pp.  188-193. 

**This  matter  is  discussed  in  ch.  4,  pp.  50-53. 

"Letter  dated  Dec.  20,  1920. 

ttBi-monthly  meeting  of  the  Pennsylvania  Underwear  Manufacturers'  Division 
of  the  National  Association  of  Hosiery  and  Underwear  Manufacturers,  Jan.  13, 
1917,  Textile  World  Journal,  Jan.  20,  1917,  p.  35. 


273]  ADVANTAGES  AND  DISADVANTAGES  lOO, 

Arkansas,  Louisiana,  and  Texas.  Effective  cooperation  between 
all  of  these  units  was  well  nigh  impossible.46 

The  National  Bottle  Manufacturers'  Association  found  it  im- 
practicable to  adopt  the  open  price  system  in  its  entirety  for  the 
reasons,  as  expressed  by  the  secretary  that,  "the  open  price  plan 
can  only  be  successfully  operated  under  certain  conditions.  These 
conditions  require  a  comparatively  small  membership — a  fairly 
large  unit  of  sale — and  a  uniformity  of  product.  In  our  case  we 
have  a  rather  large  membership,  there  being  about  fifty  sub- 
scribers to  our  special  fund.  There  are  a  great  many  medium 
and  small  sized  sales  so  that  the  volume  of  business  to  be  recorded 
would  be  very  large;  and  finally  we  have  a  wide  diversity  of 
interest  among  the  members.  Some  members  are  making  only 
one  class,  others  are  making  three  or  four,  while  others  make  all 
eleven  classes.  Because  of  these  conditions  we  feel  it  would  not 
be  a  practical  plan  to  even  consider  the  operation  of  the  open 
price  plan  for  the  main  association."47 

The  negligence  shown  in  the  performance  of  obligations  is  of 
sufficient  gravity  to  lead  some  persons  to  believe  that  the  volun- 
tary form  of  association  is  doomed  to  failure  on  this  score  alone.48 
This  negligence  is  chiefly  marked,  first,  by  poor  attendance  at 
meetings;  and  second,  by  extreme  laxness  in  furnishing  the  re- 
quired reports  to  the  secretary.  Laxness  in  furnishing  reports  may 
be  due  either  to  carelessness,  indigence,  or  a  deliberate  resolve 
to  withhold  certain  kinds  of  information. 

One  cannot  read  the  accounts  of  open  price  meetings  given  in 
trade  journals  without  noticing  that  secretaries  are  constantly 
bewailing  the  failure  of  members  to  attend  meetings.  Of  the  329 
members  who  belonged  to  the  American  Hardwood  Manufactur- 
ers' Association,  120  never  attended  a  meeting  and  50  attended 
but  one  meeting.49  The  Armstrong  Bureau  of  Related  Industries 

^Gadd,  F.  R.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II,  p. 
1098. 

47Stevenson,  C.  R.,  The  Elimination  of  Unfair  Competition;  address  delivered 
before  the  National  Bottle  Manufacturers'  Association,  May  I,  1920. 

48Mr.  Armstrong  of  the  Armstrong  Bureau  of  Related  Industries  voices  this 
opinion. 

"Argument  of  L.  C.  Boyle  in  the  Supreme  Court  of  the  United  States,  American 
Column  &  Lumber  Co.  vs.  U.  S.,  p.  34. 


1 10  OPEN  PRICE  ASSOCIATIONS  [274 

has  sought  to  insure  better  attendance  at  meetings  by  imposing 
fines  on  those  who  absent  themselves  or  come  tardy. 

Secretaries  also  are  constantly  admonishing  members  to  be  more 
prompt  and  regular  in  submitting  reports.  In  this  connection  the 
secretary  of  the  Northern  Hemlock  and  Hardwood  Manufacturers' 
Association  writes,  "We  now  have  about  ninety  members,  and 
of  these  about  fifty  are  reporting  their  sales  and  these  are  the 
only  ones  who  receive  the  information  in  the  Sales  Bulletin.  It 
is  open  to  any  of  the  others  whenever  they  desire  to  report  their 
sales.  If  this  requirement  were  not  made,  it  would  be  very  diffi- 
cult to  get  any  of  the  firms  to  make  the  reports."50 

The  secretary  of  the  California  White  &  Sugar  Pine  Manufac- 
turers' Association  writes,  "We  have  never  yet  had  fifty  per  cent 
of  our  members  submit  statistics  effective  the  same  date  and 
those  received  are  never  complete.  With  regard  to  prices,  we 
have  requested  members  to  send  in  to  this  office  copies  of  their 
orders  to  be  tabulated  and  returned  to  them  at  weekly  intervals. 
At  the  present  time  about  five  out  of  forty-eight  are  doing  this."51 

In  one  of  their  meetings,  the  secretary  of  the  West  Coast 
Lumber  Manufacturers'  Association  said,  "It  is  to  be  regretted 
that  we  cannot  get  all  the  mills  to  report  within  reasonable  time. 
*****  *  Some  of  the  reports  for  as  far  back  as  October, 
1912,  are  not  in  yet,  and  we  are  still  working  on  them.  We  have 
sent  as  high  as  six  requests  without  receiving  any  reply."52 

Mr.  Wm.  J.  Mathews,  counsel  for  several  of  the  Eddy  associa- 
tions, admitted  before  the  Lockwood  Committee  that  members 
did  not  always  make  a  report  to  the  secretary  of  corrected  bids.53 
There  is  hardly  an  open  price  constitution,  coming  within  the 
notice  of  the  writer  that  does  not  take  cognizance  of  this  negli- 
gence in  reporting  by  providing  that  members  who  do  not  furnish 
information  shall  receive  none.  In  addition,  members  of  the  Knit 
Goods  Manufacturers  are  required  to  sign  a  statement  reading 
as  follows:  "I  hereby  agree  that  I  will  be  responsible  either  by 

60Swan,  O.  T.,  Letter  dated  Jan.  4,  1921. 

"Smith,  C.  Stowell,  Letter  dated  Dec.  3,  1920. 

^This  report  was  made  in  1913  at  the  March  meeting.  See  American  Lumber- 
man^ April  5,  1913. 

"Testimony  of  Wm.  J.  Mathews,  Record,  New  York  Joint  Legislative  Committee 
on  Housing,  Dec.  29,  1920,  p.  4635. 


275]  ADVANTAGES  AND  DISADVANTAGES  III 

personal  attention  or  delegation  to  some  particular  person  in  my 
employ  to  see  that  any  and  all  quotations,  prices,  rebates,  or  any 
other  condition  covering  quotation  or  sales  which  differ  in  any 
way  from  prices,  conditions,  etc.,  on  file  at  any  time  with  the 
Association  are  forwarded  to  the  office  of  our  Association  within 
twenty-four  hours  from  the  time  such  changes  are  made.  I  fur- 
ther agree  that  this  agreement  is  binding  as  long  as  my  mill  is  a 
Regular  Member  of  the  Knit  Goods  Manufacturers  of  America."54 

In  some  quarters,  at  least,  members  appear  to  be  intentionally 
deceiving  other  members  about  the  nature  of  their  transactions. 
This  is  done  by  omitting  from  their  reports  any  low  sales  or  ex- 
ceptional discounts  that  may  have  been  made.  This  abuse  is  of 
a  most  serious  character  because  it  tends  to  undermine  the  spirit 
of  confidence  and  trust  that  must  be  developed  to  a  considerable 
degree  before  much  progress  in  open  price  work  can  be  made. 
One  open  price  secretary  informed  the  writer  that  dishonesty  in 
reporting  is  very  prevalent,  and  is  to  be  ascribed,  he  thought,  to 
the  fact  that  members  are  ashamed  to  turn  in  reports  of  low  sales. 
In  the  textile  industry  complaints  frequently  arise  that  members 
do  not  report  discounts  that  have  been  made.  One  important 
textile  manufacturer  is  quoted  as  saying,  "I  do  not  want  my 
fabrics  filed  with  this  Association.  It  might  be  different  if  you 
could  get  the  whole  truth  from  all  competitors,  but  do  you  think 
that  sellers  are  going  to  tell  the  five  per  cent  'inside'  they  are 
giving  John  Jones  or  the  ten  percent  that  Tom  Smith  gets?  To 
be  sure  they  will  report  the  open  market  price,  but  it  is  just  these 
private  terms  that  make  competition  so  hard  in  the  marketing  of 
wool  goods,  and  they  will  be  just  as  much  of  a  factor  whether 
there  is  an  open  price  association  or  not."55 

In  one  of  the  meetings  of  the  Michigan  Hardwood  Manufac- 
turers' Association  the  Secretary  gave  vent  to  the  following  vig- 
orous language:  "In  this  connection  it  is  well  to  state  that  certain 
members  of  the  Committee  have  knowledge  of  sales  made  by  a 

""Amendment  to  Constitution,  Knit  Goods  Manufacturers  of  America," 
Textile  World  Journal,  May  17,  1919. 

For  other  instances  of  negligence  in  reporting,  see  American  Lumberman,  Feb. 
10,  1917,  Mar.  29,  1913,  Nov.  2,  1912. 

^Textile  World  Journal,  Aug.  12,  1916,  p.  20. 


112  OPEN  PRICE  ASSOCIATIONS  [276 

few  members  at  low  prices  that  have  not  been  reported  to  the 
secretary.  No  one  is  obliged  to  get  the  list  prices,  but  everyone 
has  a  moral  obligation  to  report  all  sales.  There  is  absolutely 
no  other  accurate  way  to  determine  the  market  conditions,  and 
it  is  a  distressing  commentary  on  the  loyalty  of  some  of  our  mem- 
bers to  say  that  this  committee  must  "gumshoe"  around  the  trade 
for  price-sale  information.  Any  member  sacrificing  stock  does 
himself  and  the  association  less  injury  by  frankly  acknowledging 
the  transaction  than  he  does  by  covering  it  up.  Any  member 
who  persistently  covers  up  such  transactions  may  justly  be  sus- 
pected of  trying  to  take  advantage  of  other  members  who  are 
not  only  trying  to  get  a  fair  price  for  their  goods  but  who  also, 
when  necessity  constrains  them  to  a  sacrifice,  make  a  report  of 
it  to  the  Association,  thereby  putting  all  members  in  a  position 
to  know  the  real  conditions.  Secrecy  will  ultimately  reflect  more 
real  injury  upon  the  culprit  than  upon  his  associates  whom  he  has 
misled  by  his  silence."56 

At  the  time  when,  with  the  help  of  Mr.  Eddy,  the  old  Yellow 
Pine  Association  was  being  reorganized  into  what  later  became 
the  Southern  Pine  Association,  it  was  brought  out  in  the  presence 
of  Mr.  Eddy  that  under  the  old  form  of  association  the  practise 
had  been  to  send  to  the  secretary  copies  of  all  orders,  but  that 
very  soon  it  developed  that  only  a  few  of  the  large  operators 
sent  in  this  information,  and  that  they  reported  only  the  cream 
of  their  orders.57 

Cognizance  of  this  abuse  is  taken  in  some  constitutions.  One 
constitution,  for  example,  provides  that  members  who  file  mis- 
leading information  will  be  dropped  from  membership.58  Another 
means  often  resorted  to  in  order  to  encourage  honesty  in  reporting 
is  to  show  no  figures  of  individuals  in  the  compiled  reports  issued 
from  the  secretary's  office. 

The  reporting  system  is  in  many  instances  deficient  because 
reports  are  either  inaccurate,  or  obsolete  or  the  information  con- 
tained therein  is  not  comparable.  Some  secretaries  have  frankly 
admitted  to  the  writer  that  members  are  not  as  careful  about 

M American  Lumberman,  Oct.  23,  1915. 

"Ibid.,  Dec.  20,  1913. 

**By-Laws,  Society  of  Manufacturing  Confectioners,  Sec.  8. 


277]  ADVANTAGES  AND  DISADVANTAGES  113 

submitting  accurate  reports  as  they  should  be.  Oftentimes  the 
fault  is  due,  not  to  carelessness,  but  to  an  inadequate  system  of 
account  keeping  which  makes  it  nearly  impossible  to  submit  any- 
thing more  than  mere  estimates. 

If  the  industry  is  such  that  wide  and  sudden  fluctuations  occur 
in  the  price  of  the  product,  it  is  found  difficult,  if  not  impossible, 
to  put  sales  reports  in  the  hands  of  members  in  time  to  be  of 
any  value  in  gauging  the  trend  of  the  market.  This  is  particularly 
true  if  the  membership  is  large  and  widespread,  as  was  the  case 
with  the  American  Hardwood  Manufacturers'  Association.  Be- 
cause of  the  vast  number  of  reports  of  sales  to  be  arranged  and 
compiled,  the  Manager  of  Statistics  found  it  impossible  to  mail 
reports  to  members  oftener  than  once  a  week.  The  reports  came 
out  too  infrequently  to  be  of  use  as  a  guide  in  quoting  prices. 
This  was  particularly  true  in  the  latter  part  of  1919  and  the  early 
part  of  1920  when  prices  for  lumber  rose  almost  daily.  Consid- 
erable testimony  was  given  to  show  the  obsolete  character  of 
these  sales  reports.  A  few  of  the  more  representative  statements 
are  as  follows: 

Mr.  J.  T.  Holloway  testified,  "As  to  the  Sales  Report,  affiant 
says  that  under  normal  conditions  these  data  would  be  of  value 
in  that  they  would  give  a  mill  operator  an  understanding  of  the 
market  tendency.  However,  under  the  abnormal  conditions  that 
have  existed  for  the  last  four  or  five  months,  the  Sales  Reports 
are  practically  of  little  value,  because  when  they  reach  the  mem- 
bers they  are  from  ten  days  to  two  weeks  old  and  the  data  are 
such  past  history  that  they  are  of  no  practical  worth.59 

Mr.  S.  A.  Williams  said,  "Affiant  states  that  he  has  always 
carefully  read  the  sales  reports  issued  by  the  Open  Competition 
Plan,  but  he  has  found  that  they  report  sales  as  of  ten  days  to 
two  weeks  past,  and  that  they  do  not  reflect  the  present  condition 
of  the  market  at  the  time  of  reading,  and  consequently  the  benefit 
derived  was  exceedingly  limited.  It  is  the  opinion  of  affiant  that 
any  lumber  producer  using  the  prices  reported  in  these  sales  re- 
ports as  a  guide  would  in  the  majority  of  cases  in  the  past  few 

"Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  Ill,  p.  1661.  This 
affidavit  was  filed  Mar.  9,  1920. 


114  OPEN  PRICE  ASSOCIATIONS  [278 

months  at  least  have  sold  his  lumber  for  #5.00  to  $10.00  per 
thousand  under  the  market."60 

G.  W.  Everts  testified:  "In  reference  to  the  sales  reports  affiant 
desires  to  state  that  he  considers  that  the  sales  data  exhibited 
by  this  sales  report  are  from  one  to  two  weeks  behind  the  current 
market,  but  affiant  states  that  he  does  consider  the  reports  of 
value  as  indicating  the  trend  of  market  conditions,  but  that,  in 
so  far  as  being  an  accurate  guide  as  to  what  today's  prices  are, 
they  are  of  very  little  assistance,  and  this  as  stated  on  account  of 
the  rapid  changes  due  to  the  enormous  demand  and  the  lack  of 
hardwood  supplies  throughout  the  country."61 

In  many  cases  it  is  found  extremely  difficult  to  get  products 
so  standardized  as  to  make  reports  of  sales  comparable;  hence 
their  effectiveness  is  very  materially  diminished.  Such  was  the 
case  with  reports  of  sales  issued  by  the  American  Hardwood 
Manufacturers'  Association.  The  whole  lumber  industry  has 
made  tremendous  strides  in  the  standardization  of  grades,  yet 
the  specifications  laid  down  are  not  so  exact  but  that  there  may 
be  found  differences  in  the  quality  of  lumber  within  each  grade. 
These  differences  are  enough  to  detract  considerably  from  the 
value  of  sales  reports  as  is  indicated  by  the  following  testimony: 

Mr.  H.  G.  Garrett  said  that,  "the    difficulty    with    reported 

prices  lies  in  the  lack  of  uniformity  of  grade  in  hardwood  lumber. 
As  a  concrete  example  affiant  states  that  in  the  grades  of  lumber, 
he  has  frequently  found  it  cheaper  to  pay  some  manufacturers 
from  $10.00  to  $15.00  a  thousand  more  for  the  so-called  same 
grade  than  others  whose  lumber,  tho  of  the  same  alleged  grade, 
is  really  of  inferior  quality."62 

One  firm  wrote  to  the  Manager  of  Statistics  as  follows:  "We 
are  young  in  the  hardwood  game,  but  find  more  or  less  manipu- 
lation of  grades,  and  this  reduces  the  value  of  the  price  informa- 
tion, as  a  mill  selling  No.  I  Oak  at  $25.00  at  the  mill  may  actually 
be  receiving  more  money  for  his  stock  than  some  other  mill,  that 
has  accepted  an  order  for  a  National  grade  at  $28.oo."63 

wlbid.,  Vol.  Ill,  p.  1639.    Affidavit  filed  Mar.  9,  1920. 

^Ibid.,  Vol.  Ill,  p.  1633.  Affidavit  filed  Mar.  9,  1920;  see  also  Vol.  Ill, 
pp.  1530,  1563, 1639. 

^Record,  Vol.  Ill,  p.  1722. 

"Williams,  S.  A.,  Record,  Vol.  II,  Exh.  No.  1154. 


279]  ADVANTAGES  AND  DISADVANTAGES  115 

The  list  of  disadvantages  here  reviewed  is  sufficiently  formida- 
ble to  make  it  appear  that  the  fate  of  open  price  associations  in 
some  industries,  at  least,  is  somewhat  uncertain.64  Probably  all 
of  the  disadvantages  named  are  not  applicable  to  all  open  price 
associations.  Undoubtedly  the  larger  associations  find  themselves 
more  harassed  in  this  respect  than  do  the  smaller  ones.  In  the 
opinion  of  the  writer  the  most  serious  weakness  of  open  price 
work  as  it  is  conducted  is  the  exhibition  of  a  lack  of  good  faith 
among  members,  displaying  itself  chiefly  in  an  attempt  to  deceive 
each  other  by  filing  misleading  information.  This  attitude  is 
undoubtedly  a  heritage  of  the  old  competitive  regime.  Imbued 
as  they  have  been  with  an  antagonistic  spirit  toward  one  another, 
venting  itself  in  falseness  and  trickery,  it  would  be  a  matter  of 
surprise  if  this  feeling  should  have  died  out  in  the  short  space  of 
the  nine  years  in  which  open  price  work  has  been  in  existence.60 
It  is  thought  that  as  members  become  truly  educated  to  the 
advantages  accruing  from  open  price  work  and  come  to  realize 
that  this  work  cannot  thrive  in  the  presence  of  falseness,  deceit, 
and  laxness  of  performance  of  duties,  they  will  drop  the  practises 
which  now  seem  consequential  enough  to  threaten  the  very  ex- 
istence of  the  open  price  institution.  The  open  price  movement 
is  still  too  much  in  its  infancy  to  warrant  one  in  basing  predic- 
tions of  its  success  or  failure  on  any  data  so  far  accumulated. 


"The  uncertainties  attendant  upon  the  doubtful  legality  of  open  price  work  are 
reserved  for  later  discussion.    See  ch.  8,  pp.  161-175. 
KThis  statement  is  made  in  1921. 


CHAPTER   VII 
OPEN  PRICE  ACTIVITY  IN  THE  LUMBER  INDUSTRY 

The  wealth  of  data  disclosed  by  recent  government  investi- 
gations in  the  lumber  industry  taken  together  with  the  vast 
amount  of  evidence  collected  in  the  case  of  the  United  States 
vs.  the  American  Hardwood  Manufacturers'  Association  renders 
it  possible  to  get  a  view  of  the  operation  of  the  open  price  system 
in  this  industry  such  as  no  other  industry  has  yet  afforded. 

In  another  connection1  it  has  been  pointed  out  that  open  price 
work  in  the  lumber  industry  is  almost  entirely  limited  to  asso- 
ciations of  manufacturers.  In  a  survey  made  by  the  American 
Lumberman  in  1917  it  was  found  that  twenty-seven  associations 
of  manufacturers  were  in  existence  at  that  time.  The  highest 
membership  of  any  one  of  these  organizations  reporting  was 
892;  the  lowest,  ten.  There  was  an  average  percentage  of  fifty- 
eight  members  to  one  hundred  eligibles.  The  average  age  of 
the  associations  was  8.86  years.  Twenty-two  associations  were 
organized  previous  to  1917.  Of  the  twenty-seven  associations 
two  were  organized  in  1889,  one  in  1891,  one  in  1897,  but  all 
the  others  are  less  than  twenty  years  old  and  seventeen  less 
than  ten.2 

A  few  of  the  more  unimportant  associations  appear  not  to 
have  operated  open  price  systems,  but  the  leading  ones  have  done 
so.  The  recent  investigation  of  the  Federal  Trade  Commission 
disclosed  that  all  of  the  principal  regional  associations  belonging 
to  the  National  Lumber  Manufacturers'  Association  have  been 
doing  open  price  work. 

These  are  (i)  the  West  Coast  Lumbermen's  Association 
(manufacturers  of  Douglas  fir  lumber);  (2)  Western  Pine  Manu- 
facturers' Association  (manufacturers  of  western  white  and  yel- 

1See  ch.  i,  Prevalence  of  Open  Price  Associations,  p.  3. 
1 American  Lumberman,  June  9,  1917,  p.  40. 

116 


28 1  ]  THE  LUMBER  INDUSTRY  1 17 

low  pine);  (3)  Northern  Hemlock  and  Hardwood  Manufactur- 
ers' Association  (manufacturers  of  hemlock  and  hardwoods  in 
Wisconsin  and  upper  Michigan);  (4)  Michigan  Hardwood  Manu- 
facturers' Association  (manufacturers  of  hemlock  and  hard  woods 
in  the  lower  peninsula  of  Michigan);  (5)  Northern  Pine  Manu- 
facturers' Association  (manufacturers  of  Minnesota  Northern 
pine);  (6)  North  Carolina  Pine  Association  (manufacturers  of 
North  Carolina  pine);  (7)  Georgia-Florida  Saw  Mill  Associa- 
tion (manufacturers  of  short  leaf  yellow  pine  lumber);  (8)  South- 
ern Cypress  Association  (manufacturers  of  cypress  lumber); 
(9)  California  Sugar  and  White  Pine  Manufacturers'  Associa- 
tion (manufacturers  of  sugar  and  white  pine  lumber);  (10)  South- 
ern Pine  Association  (manufacturers  of  yellow  pine  lumber).8 

The  only  important  association  of  manufacturers  doing  open 
price  work  that  is  not  affiliated  with  the  national  organization 
is  the  American  Hardwood  Manufacturers'  Association. 

The  sole  connection  that  the  national  association  has  had 
with  the  open  price  system  has  been  to  receive  statistics  of 
various  kinds  from  the  regional  associations,  particularly  those 
of  production,  these  being  summarized  and  the  summaries  dis- 
tributed to  the  lumber  manufacturers  through  the  regional  asso- 
ciations.4 The  American  Hardwood  Manufacturers'  Association 
offers  the  only  instance  where  an  association  has  been  organized 
to  do  open  price  work.  The  other  lumber  associations  have 
installed  the  work  as  a  departmental  activity. 

No  doubt  the  followers  of  Mr.  Eddy  would  assert,  ^nd  with 
much  truth,  that  the  lumber  associations  are  not  true  to  the 
standard  type  of  open  price  association,  because  most  of  them 
have  attempted  to  do  more  than  merely  inform  members  about 
past  transactions.  By  issuing  price  lists  and  discount  sheets 
they  have  tried  to  induce  members  to  adopt  a  uniform  or  rising 
scale  of  prices.  Practically  every  lumber  association  has  resorted 
to  this  illegal  practise  at  one  time  or  another.  The  recent  report 
of  the  Federal  Trade  Commission  shows  that  there  has  been 

^Preliminary  Report  of  the  Federal  Trade  Commission  on  Activities  of  Lumber 
Manufacturers'  Associations,  Jan.  10,  1921,  p.  2. 


Il8  OPEN  PRICE  ASSOCIATIONS  [282 

more  or  less  concerted  action  among  members,  working  through 
committees,  in  issuing  price  lists  and  discount  sheets.5 

On  June  18,  1919,  Mr.  Howard  Jayne,  of  the  Willappi  Lumber 
Company,  a  member  of  the  Committee  on  Values,  wrote  Secre- 
tary Babcock  of  the  West  Coast  Lumbermen's  Association,  in 
part:  "With  reference  to  the  work  of  the  Price  Committee  of 
the  Association,  I  am  afraid  my  ideas  are  not  in  accord  with  the 
Committee,  in  that  I  personally  feel  quite  opposed  to  coming 
out  with  so  many  discount  sheets,  with  such  radical  advances. 
It  seems  to  me  the  market  is  in  a  shape  where  it  is  profitable 
to  all  parties  concerned  on  a  basis  of  discount  sheet  No.  5,  and 
that  from  that  point  on  it  should  be  a  case  of  the  mills  asking  a 
price  commensurate  with  their  ability  to  deliver  it.  Perhaps  it 
is  true  that  discount  sheet  No.  6  conforms  to  the  present  market 
conditions,  in  fact  we  have  sold  items  on  that  basis;  neverthe- 
less, we  believe  concerted  action  on  the  part  of  the  mills  should 
be  dropped  from  now  on."6 

According  to  the  version  of  the  Federal  Trade  Commission, 
sales  reports  were  issued  to  enable  members  to  compare  the 
actual  prices  obtained  with  the  prices  quoted  in  the  uniform 
discount  sheets.7  If  any  manufacturer  interfered  with  the  mar- 
ket price  of  lumber  by  quoting  a  lower  price,  he  was  immedi- 
ately notified  by  some  manufacturer  of  the  discount  sheet  in 
effect,  together  with  other  general  information  which  would  en- 
courage him  to  obtain  full  list  prices.8 

In  1919  the  Michigan  Hardwood  Manufacturers'  Association 
submitted  the  plan  of  issuing  price  lists  and  discount  sheets  to 
Mr.  L.  C.  Boyle,  General  Attorney  of  the  National  Lumber 
Manufacturers'  Association,  for  his  opinion.  Mr.  Boyle  replied, 
"As  a  conservative  and  precautionary  method  I  am  urging  your 
group  to  abandon  your  price  list  plan.  ...  I  know  that  it  is 
not  the  purpose  of  your  plan  to  fix  the  price.  Your  members 
are  free  to  sell  at  any  price  they  please,  nevertheless,  when  your 

8I.  e.,  Preliminary  Report  of  the  Federal  Trade  Commission  on  Aridities  of  Lumt 
ber  Manufacturers'  Associations. 
*Ibid..  p.  66. 
"'Ibid.,  p.  68. 


283]  THE  LUMBER  INDUSTRY  IIQ 

committee  publishes  a  higher  price  than  the  current  market,  based 
upon  its  conception  of  market  tendencies,  it  is  in  fact  putting 
out  figures  that  are  at  least  to  be  shot  at  by  the  trade  and  to 
that  extent  indirectly  doing  that  which  tends  to  control  prices 
to  a  higher  level."9  It  may  be  remarked  that  as  a  result  of  this 
opinion,  no  substantial  change  was  made  by  the  Michigan  Manu- 
facturers in  the  method  of  supplying  information.10  The  Federal 
Trade  Commission  gave  evidence  to  show  that  other  leading 
associations  were  pursuing  similar  methods.11 

Open  price  associations  organized  by  Mr.  Eddy  or  his  disci- 
ples do  not  permit  "suggested"  price  lists  to  be  issued  by  the 
central  office.  Any  price  information  that  is  disseminated  must 
be  based  on  prices  actually  quoted  by  members. 

THE  YELLOW  PINE  ASSOCIATION 

To  recount  the  origin,  history,  organization,  and  operation  of 
each  of  the  many  important  associations  of  lumber  manufacturers 
would  require  a  volume  in  itself.12  However,  one  must  needs 
devote  some  attention  to  the  early  history  of  the  Southern  Pine 
Association,  known  before  1914  as  the  Yellow  Pine  Associa- 
tion, because,  first,  an  important  decision  was  rendered  by 
the  Supreme  Court  of  the  State  of  Missouri  with  reference 
to  this  association,  and  this  decision  has  a  bearing  on  the  legal 
aspects  of  open  price  work;  second,  the  activities  in  which  it 
has  been  engaged  reflect  pretty  accurately  those  engaged  in  by 
many  of  the  other  lumber  associations;  third,  it  is  one  of  the 
oldest  as  well  as  one  of  the  most  important  of  the  lumber  asso- 
ciations in  existence. 

The  Yellow  Pine  Association  first  had  its  origin  among  cer- 

9Preliminary  Report  of  the  Federal  Trade  Commission  on  Activities  of  Lumber 
Manufacturers'  Associations,  pp.  80-8 1. 

"Ibid.,  p.  82. 

"For  an  account  of  the  price  activities  of  (i)  the  West  Coast  Lumbermen's 
Association,  see  Report,  pp.  57-68;  (2)  the  Western  Pine  Manufacturers'  Associa- 
tion, pp.  69-74;  (3)  the  Northern  Hemlock  and  Hardwood  Manufacturers'  Asso- 
ciation, pp.  74-78;  (4)  the  Michigan  Hardwood  Manufacturers'  Association,  pp. 
78-86;  (5)  the  Southern  Pine  Association,  pp.  18-54;  (6)  the  Georgia-Florida  Saw 
Mill  Association,  p.  41. 

lsAn  account  of  their  earlier  history  may  be  found  in  a  Report  on  the  Lumber 
Industry  by  the  Bureau  of  Corporations,  April  ai,  1914,  Part  IV. 


I2O  OPEN  PRICE  ASSOCIATIONS  [284 

tain  manufacturers  and  wholesalers  in  Southern  territory  in 
1890.  In  1906  membership  was  limited  to  yellow  pine  manu- 
facturers and  wholesale  dealers.  About  that  time  the  member- 
ship was  close  to  three  hundred  and  represented  a  yellow  pine 
cut  of  nearly  four  billion  feet  out  of  a  possible  nine  billion  feet. 
It  was  a  voluntary  organization,  had  a  written  constitution  and 
by-laws,  board  of  directors,  president,  first  vice-president,  treas- 
urer, and  secretary.  Their  duties  were  those  which  ordinarily 
go  with  their  respective  offices.  In  addition  there  were  perma- 
nent committees  on  "Grades",  "Weights",  ''Values",  "Good  of 
the  Association",  "Resolutions",  "Membership",  "Revenue",  "Au- 
diting of  Accounts",  "Terms  of  Sale",  and  "Price  Lists".13 

The  objects,  as  shown  in  the  section  of  the  constitution  added 
in  1906,  were  "to  secure  a  full  understanding  of  the  conditions 
surrounding  the  lumber  market  in  the  territory  covered  by  this 
association;  to  adopt  uniform  grades  for  the  inspection  of  lum- 
ber; to  promote  uniform  customs  and  usages  among  manufac- 
turers of  lumber;  to  procure  and  furnish  to  these  members  such 
information  as  may  tend  to  protect  them  against  unbusinesslike 
methods  of  those  with  whom  they  deal,  and  such  other  infor- 
mation as  may  be  found  for  the  benefit  of  members;  and  to 
propose  and  carry  out  such  other  measures  as  may  be  deemed 
for  the  welfare  and  in  -the  interest  of  manufacturers  of  lumber 
who  shall  be  members  of  the  association."14 

This  association  was  one  of  the  pioneers  in  classifying  lumber 
into  uniform  grades  and  sizes.  By  a  system  of  rigid  inspection 
it  was  able  to  enforce  among  manufacturers  of  yellow  pine  its 
rules  pertaining  to  grades,  sizes,  and  weights.  What  is  more 
important  from  the  point  of  view  of  open  price  work  is  that 
these  inspectors,  employed  by  the  association,  kept  the  central 
office  informed  as  to  the  actual  amount  of  yellow  pine  in  stock 
among  members.  In  addition,  each  of  the  members  furnished 
the  central  office  with  reports  of  stock,  lumber  manufactured, 
and  shipments  made.  Thus  the  secretary  knew  the  amount  of 
lumber  being  manufactured,  by  whom,  the  amount  being  sold, 

^Report  of  the  Commissioner  of  the  Court,  State  vs.  Arkansas  Lumber  Co.  et  al., 
169  S.  W.,  p.  154. 
p.  152. 


285]  THE  LUMBER  INDUSTRY  121 

by  whom,  and  the  amount  of  stock  remaining  in  the  hands  of 
each  respective  manufacturer.  This  information  was  dissemi- 
nated from  time  to  time  among  the  membership  by  mail  or  at 
meetings.15 

The  feature  of  the  association's  work  which  probably  is  of 
most  interest  to  the  student  of  open  price  systems  is  its  price 
activity.  Here  is  found  what  is  undoubtedly,  among  lumber 
associations,  the  earliest  instance  of  the  issuance  of  price  lists. 
From  its  organization  in  1890  the  association  issued  price  lists 
to  members,  and  to  the  trade.16  They  were  published  in  booklet 
form  to  1906,  and  subsequently  as  a  market  report.  The  work 
of  preparing  the  list  was  done  by  a  committee  until  1906,  when 
it  was  turned  over  to  the  secretary.  In  order  to  aid  him  in 
getting  out  the  price  list,  members  were  requested  to  submit, 
occasionally,  reports  of  sales.  Another  purpose  in  calling  for 
these  reports  was  to  determine  if  members  were  observing  the 
association  price  list.  The  procedure  followed  was  for  the  sec- 
retary to  mail  to  each  member  a  sheet,  which  was  a  copy  of 
the  price  list  in  force,  with  a  blank  column  at  the  right  of  the 
column  of  prices  quoted.  The  correspondent  in  answering,  if 
selling  or  offering  at  the  figures  contained  in  the  price  list,  would 
make  no  change  upon  the  sheet.  If  there  were  items  which  he 
had  sold  that  were  lower  than  the  list,  he  would  insert  the  prices 
at  which  he  had  sold  or  was  offering  in  the  space  in  the  blank 
column  opposite  the  item;  if  higher  than  the  price  list,  the  same 
method  was  employed.17  With  this  information  as  a  basis,  the 
secretary  would  issue  his  price  list  or  discount  sheet.  The  ne;v 
prices  named  were  usually  "boosting"  prices.18  Witnesses  for 
the  State  testified  that  with  the  issuance  of  a  market  report,  the 
dealers  had  to  pay  the  prices  named  therein.19  However,  mem- 
bers of  the  association  did  not  all  abide  by  the  prices  listed. 
Those  who  were  not  financially  strong  felt  impelled  to  move 

»/«</.,  p.  154. 

udmerican  Lumberman,  June  22,  1912. 

11 'Report  of  the  Commissioner  of  the  Court,  State  vs.  Arkansas  Lumber  Co.  et  al. 
169  S.  W.  p.  156;  also  American  Lumberman,  June  20,  1912. 
18 l  Report  of  the  Commissioner  of  the  Court,  p.  159. 


122  OPEN  PRICE  ASSOCIATIONS  [286 

their  stocks  quickly  by  cutting  below  the  list  in  order  to  get 
ready  cash  with  which  to  meet  obligations. 

The  court  found  members  of  the  Yellow  Pine  Association 
guilty  not  only  of  fixing  prices  to  be  charged  for  yellow  pine 
lumber,  but  of  curtailing  output  by  agreement  and  concerted 
action.20  The  reports  of  production,  shipments,  and  stocks  were 
a  ready  instrument  with  which  to  consummate  this  conspiracy 
to  curtail  production.  Concerted  action  was  secured  at  meetings. 
In  1904  a  resolution  was  passed  to  the  effect  that  each  member 
should  curtail  his  output  thirty-three  and  one-third  per  cent 
for  a  period  of  ninety  days.  A  large  number  acted  in  accord- 
ance with  the  resolution.21  The  monthly  reports  of  cut,  ship- 
ments, and  stocks  received  by  the  secretary  were  used  as  a  check 
in  determining  how  well  members  were  complying  with  the  reso- 
lution. After  the  first  period  had  elapsed,  a  second  period  of 
curtailment  of  ninety  days  was  recommended  with  like  results.22 

As  late  as  1912,  three  or  four  years  after  suit  had  been  brought 
against  members  of  the  Yellow  Pine  Association,  they  continued 
to  exhort  each  other  to  cut  down  production  and  boost  prices. 
The  character  of  these  so-called  "experience"  meetings  is  pretty 
clearly  shown  by  the  following  extracts  from  their  round  table 
discussion: 

"Things  are  looking  fine  for  a  good  year's  business  if  we  do 
not  get  in  a  hurry  for  our  golden  eggs  and  kill  the  goose  our- 
selves. I  can  say  as  a  general  thing  for  my  Texas  brethren 
in  the  lumber  business  that  they  are  not  taking  that  step.  For 
the  last  60  days  I  have  interviewed  every  traveling  man  in  the 
machinery  and  supply  lines  and  every  lumberman  coming  into 
the  office,  and  up  to  the  present  time  I  have  not  found  a  single 
instance  of  anybody  increasing  his  production.  If  that  policy  is 
followed  I  look  for  a  better  year  that  even  the  famous  year 
I907."23 

Mr.  F.  G.  Dickman  said,  "We  closed  orders  day  before  yes- 

20Suit  was  begun  in  1908;  final  judgment  was  rendered  in  1914. 
Zl Report  of 'the  Commissioner  of 'the  Court,  p.  160. 
P/MA 

^Speech  of  Eli  Wiener  at  monthly  meeting  of  Yellow  Pine  Association,  quoted 
in  American  Lumberman,  July  6,  1912,  p.  41. 


287]  THE  LUMBER  INDUSTRY  123 

terday  for  export  which  will  run  us  to  September  and  we  are 
not  going  to  run  nights  or  overtime  to  make  that  up."2* 

Mr.  S.  H.  Fullerton  said,  "My  experience  is  much  the  same 
as  others  who  have  spoken.  I  think  the  tide  has  set  onward 
and  upward  and  that  prices  of  lumber  will  steadily  advance.  .  .  . 
After  hearing  the  talks  here  I  think  I  will  go  home  and  get  our 
sales  manager  to  put  up  prices  about  $1.00  a  thousand.  I  do 
not  see  what  is  the  use  of  realizing  that  this  situation  is  on  us 
unless  we  can  take  some  advantage  of  it.  I  see  my  friend 
Johnson  sitting  here  and  I  expect  he  will  put  his  price  up  about 
$1.50  in  order  to  save  some  of  it  for  a  higher  price  later."25 

In  handing  down  his  decision,  the  judge  drew  a  line  of  dis- 
tinction between  proper  and  improper  price  activities  and  inci- 
dentally passed  judgment  in  favor  of  open  price  activity  as  con- 
ceived by  Mr.  Eddy  and  his  followers.  This  is  the  only  ruling 
that  has  yet  been  made  by  any  State  court  bearing  directly  on 
the  legality  of  exchanging  information  about  past  transactions. 

In  giving  his  opinion  he  said,  in  part,  "A  price  current  may 
be  issued  under  the  Missouri  Anti-trust  laws,  but  the  list  or 
compilation  ought  either  to  be  compiled  and  promulgated  by 
an  indifferent  or  wholly  disinterested  person,  or  if  compiled  and 
promulgated  by  an  interested  person,  it  ought  to  be  honestly 
and  fairly  compiled;  it  ought  fairly  to  represent  current  prices 
as  based  upon  actual  sales,  or  upon  actual  offers  to  sell,  and 
not  misrepresent  such  prices  with  a  view  of  boosting  any  prices 
of  any  item  or  items. 

"If  Smith,  the  secretary  of  the  association,  pursuing  the  law- 
ful methods  originated  by  him  of  obtaining  reports  from  corre- 
spondents of  actual  sales,  had  fairly  compiled  and  averaged  such 
reports  into  a  list  of  current  prices  of  yellow  pine  lumber,  we 
would  not  say  that  Smith's  acts  or  acts  of  the  association  in  this 
behalf  were  unlawful."26 

The  judge  imposed  heavy  fines  on  many  of  the  leading  man- 
ufacturers. The  Yellow  Pine  Association  was  disbanded,  only 
to  be  immediately  reorganized,  with  the  help  of  Mr.  Eddy,  under 

*/#</.,  p.  41. 
*Ibid.>  p.  42. 
"Opinion  of  the  Judge,  State  vs.  Arkansas  Lumber  Co.  et  al.,  169  S.  W.,  p.  177. 


124  OPEN  PRICE  ASSOCIATIONS  [288 

the  name  of  the  Southern  Pine  Association.  Of  the  open  price 
associations  that  have  been  mentioned  this  association  is  the 
largest  in  point  of  membership  with  the  exception  of  the  Ameri- 
can Hardwood  Manufacturers'  Association.  There  were  approx- 
imately two  hundred  members  in  1918.  Since  the  scope  of  its 
activities  is  very  similar  to  that  of  the  American  Hardwood  Man- 
ufacturers' Association,  whose  activities  are  to  be  reviewed  later 
in  this  chapter,  this  subject  will  be  omitted.27 

The  history  of  the  Yellow  Pine  Association  illustrates  with 
what  readiness  the  open  price  system  may  be  made  a  tool  in  the 
hands  of  those  who  would  pervert  its  use  in  order  to  accomplish 
results  at  once  unlawful  and  injurious  to  the  public. 

THE  AMERICAN  HARDWOOD  MANUFACTURERS'  ASSOCIATION 
The  American  Hardwood  Manufacturers'  Association,  before 
it  recently  ceased  doing  open  price  work,28  was  the  largest  open 
price  association  in  existence.  Early  in  1920  its  membership 
comprised  383  manufacturers,  who  operated  approximately  465 
out  of  an  approximate  total  of  9,524  mills  engaged  in  hardwood 
manufacture  in  the  United  States,  and  their  output  was  about 
thirty-three  and  one-third  per  cent  of  the  total  production  in  the 
United  States.29 

This  association  came  into  existence  January  I,  1919,  as  a  re- 
sult of  the  amalgamation  of  two  associations  of  hardwood  man- 
ufacturers, the  Hardwood  Manufacturers'  Association  of  the 
United  States,  with  headquarters  in  Cincinnati,  organized  in  1902, 
which  drew  its  membership  in  the  main  from  the  eastern  part 
of  the  United  States;  and  the  American  Hardwood  Manufactur- 
ers' Association,  with  headquarters  at  Memphis,  organized  in 
1917,  as  a  consolidation  of  two  smaller  groups,  which  drew  its 
membership  almost  entirely  from  the  southern  part  of  the  United 
States.  The  two  smaller  groups  were  the  Gum  Lumber  Manu- 
facturers' Association,  organized  in  1914,  and  the  American  Oak 

17A  review  of  its  activities  may  be  found  in  the  American  Lumberman,  March  26, 
1920,  p.  53. 

28In  March,  1920,  the  Federal  Court  for  the  Western  District  of  Tennessee 
granted  an  injunction  restraining  members  from  engaging  in  open  price  activity. 
See  ch.  I,  pp.  4-5. 

**  American  Lumberman,  March  13,  1920. 


289]  THE  LUMBER  INDUSTRY  125 

Manufacturers'  Association,  organized  in  1916.  Each  of  these 
small  groups  did  open  price  work  from  their  inception.30  The 
open  price  plan  operated  by  the  American  Hardwood  Manufac- 
turers' Association  since  January  i,  1919,  was  that  adopted  by 
the  American  Hardwood  Manufacturers'  Association  of  the  United 
States,  March  I,  igiy.31  The  reason  for  the  amalgamation  was 
that  these  two  groups,  to-wit,  the  Hardwood  Manufacturers'  As- 
sociation of  the  United  States  and  the  American  Hardwood  Man- 
ufacturers' Association,  had  an  intermingled  membership,  and 
were  doing  more  or  less  the  same  character  of  work.  It  was 
thought  that  by  avoiding  duplication  of  work  much  expense  could 
be  saved  the  members.32 

The  objects  and  purposes  of  the  American  Hardwood  Manu- 
facturers' Association,  as  expressed  in  its  constitution,  are  "to 
secure  a  full  understanding  of  conditions  surrounding  the  Hard- 
wood Industry;  to  adopt  such  measures  as  will  provide  for 
uniform  standards  and  improved  methods  of  manufacturing  and 
marketing  Hardwood  Forest  Products;  to  acquire,  preserve  and 
disseminate  information  in  connection  therewith;  and  to  generally 
promote  the  interests  and  welfare  of  Hardwood  manufacturers."33 

Membership  is  limited  to  manufacturers  of  hardwood  forest 
products.  Each  member  is  entitled  to  one  vote,  and  this  vote 
must  be  cast  in  person  or  by  an  authorized  representative  of  the 
firm;  proxies  are  not  permitted.  A  majority  vote  of  the  board 
of  directors  is  sufficient  to  elect  an  applicant  to  membership. 
The  board  of  directors  has  the  power  to  expel  any  member  for 
cause,  by  a  majority  vote. 

Upon  being  elected  into  membership,  members  must  pay  an 
initiation  fee  of  $25.00.  Dues  are  graduated  according  to  the 
volume  of  production.  The  rate  of  dues  is  fixed  by  the  Board 
of  Directors  and  are  assessed  annually  by  a  committee  on 

s°An  account  of  the  open  price  work  done  by  the  Gum  Lumber  Manufacturers' 
Association  may  be  found  in  the  American  Lumberman,  May  23,  1914.  For  ac- 
counts of  the  organization  and  operation  of  the  American  Oak  Manufacturers' 
Association,  see  American  Lumberman,  Nov.  14,  1916  and  Jan.  27,  1917. 

"Stark,  M.  W.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II,  p.  1 249. 

»Gadd,  F.  R.,  Record,  Vol.  II,  p.  1 100. 

^Constitution,  Art.  2,  Record,  Vol.  II,  p.  1293. 


126  OPEN  PRICE  ASSOCIATIONS  [290 

assessments.  They  are  payable  in  monthly  installments,  and  any 
member  failing  to  pay  any  installment  within  thirty  days  after 
it  is  due,  is  subject  to  suspension.34 

The  officers  of  the  association  consist  of  the  president, 
first  and  second  vice-presidents,  treasurer,  secretary-manager 
and  twenty-one  trustees.  The  president,  vice-presidents  and 
treasurer  are  elected  annually  by  the  membership;  the  trustees, 
every  third  year.  The  secretary-manager  is  appointed  and  has 
his  salary  fixed  by  the  board  of  directors.  The  latter  consist  of 
the  elective  officers  and  trustees.  The  executive  committee  is 
made  up  of  the  president  and  six  of  the  directors.  The  latter  are 
appointed  by  the  president  at  the  annual  meeting,  and  serve 
one  year,  their  appointments  being  subject  to  the  approval  of 
the  board  of  directors.  The  duties  of  officers  and  directors  are 
those  which  ordinarily  go  with  their  offices.35 

In  addition  to  these  officers  and  directors  there  are  a  number 
of  standing  committees  appointed  annually  by  the  president, 
subject  to  ratification  by  the  members.  The  scope  of  the  activi- 
ties of  the  association  is  pretty  well  indicated  in  noting  the  scope 
of  the  activities  of  these  permanent  committees. 

The  committee  on  membership  takes  such  steps  as  are  neces- 
sary to  increase  the  membership  of  the  association,  and  passes 
upon  the  eligibility  of  those  making  application  for  membership. 
The  committee  on  assessments  assesses  the  annual  dues.  The 
committee  on  advertising  passes  upon  and  handles  the  adver- 
tising programs  of  the  Association.  The  committee  on  finance 
audits  the  books  of  the  association  and  supervises  financial  mat- 
ters in  general.  The  committee  on  resolutions  handles  matters 
which  would  properly  come  before  such  a  committee.  The  com- 
mittee on  reports  and  statistics  works  out  plans  for  securing 
and  tabulating  such  information  and  statistics  as  will  be  of  value 
to  the  membership.  The  committee  on  inspection  rules  deals 
with  all  matters  pertaining  to  inspection  and  grading.  Then 
there  is  a  committee  representing  the  interests  of  each  wood, 
which  undertakes  to  promote  and  take  charge  of  such  scientific 
and  commercial  investigations  as  will  inure  to  the  benefit  of  the 

^Constitution,  Art.  3,  Record,  Vol.  II,  p.  1293. 
^Constitution,  Art.  8,  Record,  Vol.  II,  p.  1297. 


291  J  THE  LUMBER  INDUSTRY  I2/ 

manufacturers  of  that  wood.  These  woods  are  gum,  oak,  pop- 
lar, ash  and  hackberry,  cottonwood,  chestnut,  elm,  maple,  cy- 
press, hickory  and  pecan,  walnut,  and  sycamore.  There  is 
another  committee  which  exists  to  promote  the  interests  of 
manufacturers  of  sawn  and  sliced  veneers,  and  another  for 
manufacturers  of  commercial  rotary  veneers.36 

Annual  and  monthly  meetings  are  held,  and  special  meetings 
may  be  called  by  the  president  or  by  a  majority  of  the  board 
of  directors.  At  the  annual  meetings  officers  are  elected  for  the 
ensuing  year.37  In  addition  it  is  customary  for  the  president  to 
review  in  a  general  way,  and  the  secretary  more  in  detail,  the 
work  accomplished  by  the  association  during  the  year.  The 
monthly  meetings  have  been  held  by  groups  in  the  various  re- 
gions of  production.  These  group  meetings  have  been  held  at 
Cincinnati,  Ohio;  Memphis,  Tennessee;  New  Orleans,  Louisiana; 
and  Little  Rock,  Arkansas.  They  have  been  held  at  these  points 
as  a  convenience  to  the  members  in  attending.  In  order  to  have 
the  discussion  at  these  meetings  proceed  in  an  orderly  and 
systematic  manner,  the  manager  of  statistics  was  in  the  habit 
of  mailing  to  each  member,  a  few  days  in  advance  of  the  date 
of  the  meeting,  a  questionnaire  containing  a  request  for  infor- 
mation bearing  on  market  conditions  as  related  to  the  hard- 
wood industry.38  In  the  light  of  the  replies  received  to  the 
questions,  members  present  at  meetings  would  discuss  the 
various  subjects  developed  by  the  answers.  The  minutes  disclose 
that  these  discussions  were  free  and  open.  Outsiders,  including 
competitors  and  buyers,  freely  participated  in  them.39  At  prac- 
tically every  group  meeting  manufacturers  and  other  people  not 
members  of  the  Open  Competition  Plan  were  present. 

If  one  were  to  make  a  summary  of  the  chief  points  that 
usually  came  up  for  discussion  in  these  meetings,  perhaps  the 
following  would  be  representative: 

i.  The  class  of  customers  from  which  most  inquiries  and 
orders  were  coming.  Answers  to  this  question  showed  what 

KBy-Laws,  Art.  ^,  Record,  Vol.  II,  pp.  1300-1301. 
"Constitution,  Art.  6,  Record,  Vol.  II,  p.  1296. 
"Gadd,  F.  R.,  Record,  Vol.  II,  p.  1101. 
p.  1104. 


128  OPEN  PRICE  ASSOCIATIONS  [292 

industries,  consuming  hardwoods,  were  most  active,  and  served 
to  guide  members  in  determining  on  what  kinds  of  lumber  to 
accentuate  and  diminish  production. 

2.  The  length  of  time  that  it  would  take  members  to  ship 
out    total    orders    on    hand,    working   under    normal    conditions. 
The  answer  to  this  question  obviously  disclosed  the  amount  of  un- 
filled orders  on  hand,  indicating  whether  business  was  good  or  not. 

3.  The  total  production  of  hardwoods   for   the  past  month. 
These    data    when    compared    to    normal    production    showed 
whether  or  not  there  was  a  tendency  to  accelerate  or  slow  down 
production.     When  considered  in  relation  to  the  size  of  stocks 
on  hand  and  volume  of  orders,  it  was  possible  to  discern  roughly 
whether  the  tendency  was  in  the  direction  of  overproduction  or 
underproduction. 

4.  The  total  present  stock  of  hardwoods,  sold   and  unsold. 
These  data  when  compared  to  the  normal  stocks  on  hand,  and 
taken  in  relation  to  the  volume  of  production  and  orders,  were 
criteria  of  the  probable  future  trend  of  prices,  and  also  served 
to  guide  members  in  formulating  their  production  policy. 

5.  The  condition  of  labor  as  compared  to  thirty  days  ago  and 
the  causes  for  any  changes  that  might  have  come  about.     The 
efficiency  and  availability  of  labor,  of  course,  had  a  direct  bear- 
ing on  the  quantity  and  quality  of  production. 

6.  The  character  of  the  car  supply   as  compared  to  thirty 
days  ago.     The  answer  to  this  question  obviously  revealed  with 
what  dispatch  shipments  were  going  forward  to  customers. 

7.  The  character  of  collections  as  compared  to  thirty  days 
ago.     These  data  revealed  the    financial    conditions    prevailing 
among  customers  in  the  consuming  industries,  and  reflected  to 
some  extent  the  general  financial  condition  of  the  country. 

8.  The  number  of  mills,  if  any,  expecting  to  shut  down;  the 
length  of  time  they  were  to  remain  shut  down  and  the  reasons 
therefor.    The  answer  to  this  question  revealed  to  a  degree  the 
future  trend  of  production.40 

The  reporting  plan,  as  inaugurated  by  the  Hardwood  Manu- 
facturers' Association  of  the  United  States  in  1917,  and  taken 

^Minutes  of  Meetings,  Record,  Vol.  I,  pp.  104-223;   also  Gadd,  F.  R.  Record, 
Vol.  II,  pp.  1101-1103. 


293]  THE  LUMBER  INDUSTRY  129 

over  by  the  American  Hardwood  Manufacturers'  Association  in 
1919,  provided  for,  first,  production  reports;  second,  sales  re- 
ports; third,  shipping  reports;  fourth,  stock  reports;  fifth,  price 
lists;  sixth,  inspection  reports.41 

Reports  of  production  were  to  have  been  made  to  the  secre- 
tary, monthly,  each  wood  being  classified  according  to  grades 
and  thicknesses,  and  the  secretary  was  to  have  sent  to  each 
member,  once  a  month,  a  summary  of  the  production  for  the 
previous  month,  but  this  feature  of  the  plan  had  to  be  aban- 
doned because  a  sufficient  number  of  mills  did  not  turn  in  re- 
ports to  make  the  information  complete  enough  to  be 
representative.42 

The  sales  report,  as  originally  planned,  was  retained,  with  the 
exception  of  a  few  minor  changes.  Members  were  required  to 
make  a  daily  report  of  all  sales  and  cancellations,  and  these 
were  to  be  exact  copies  of  orders  taken  and  were  to  include  all 
agreements.  These  reports  were  compiled  and  issued  to  mem- 
bers weekly,  in  printed  form.  The  plan,  as  it  originally  stood, 
involved  publishing  the  names  of  customers,  but  this  was  dis- 
continued as  it  was  found  that  some  of  the  members  objected 
to  publishing  the  names  of  their  customers.  The  sales  report 
mailed  to  members,  as  finally  evolved,  showed  for  each  kind 
of  wood  and  grade  the  date  of  sale,  by  whom  sold,  the  number 
of  feet  sold,  the  thickness,  the  destination  by  city  or  territory, 
the  delivered  price  made  to  the  customer,  its  equivalence  at  a 
common  gateway,  such  as  Cairo  or  Cincinnati,  and  the  current 
average  of  sales  at  these  gateways.  The  purpose  of  the  gate- 
way price  was  to  put  all  prices  on  a  common  basis  for  compari- 
son. Comparison  of  the  actual  prices  received  was  not  possible 
because  of  difference  in  freight  rates  to  different  points.  "Pro- 
jection of  prices  to  their  gateway  equivalent"  put  all  prices  on 
a  common  basis,  thus  making  them  comparable.43 

Having  members  make  reports  of  shipments  was  a  phase  of 
the  plan  that  was  never  put  in  operation.  It  was  found  im- 
practicable to  do  so.  These  reports  were  to  have  been  made 

«Gadd,  F.  R.,  Exh.  12,  Record,  Vol.  I,  p.  82. 
«Gadd,  F.  R.,  Record,  Vol.  II,  p.  1 107. 
"See  copy  of  sales  report,  appendix,  Exh.  6. 


IjO  OPEN  PRICE  ASSOCIATIONS  [294 

daily  by  members,  and  were  to  have  been  exact  copies  of  the 
invoice.  They  were  to  have  been  summarized  by  the  secretary, 
much  in  the  same  way  that  reports  of  sales  were  summarized, 
and  mailed  weekly  to  members.44 

Reports  of  stocks  were  made  monthly  to  the  secretary,  show- 
ing the  amount  of  stock  in  each  grade,  kind,  and  thickness  on 
hand  the  first  of  the  month.  Three  columns  were  provided. 
The  first  two  columns  showed  the  total  stock  on  hand  both  sold 
and  unsold  divided  into  green  and  dry.  The  third  column 
showed  the  total  stock  of  each  kind,  grade,  and  thickness  sold. 
The  secretary  compiled  all  reports  into  one  report,  showing  for 
each  grade,  kind,  and  thickness,  in  separate  columns,  total  dry 
stocks,  total  green  stocks,  stocks  sold,  stocks  oversold,  stocks 
unsold,  stocks  unsold  for  the  month  previous,  and  the  increase 
or  decrease  in  stocks  unsold.45 

Price  lists  were  to  have  been  filed  by  each  member  with  the 
secretary  at  the  beginning  of  each  month,  and  any  changes  of 
prices  were  to  have  been  filed  as  soon  as  made.  The  secretary- 
was  to  have  sent  out  each  month  a  summary  of  these  price 
lists  showing  the  prices  asked  by  each  member,  and  any  changes 
reported  by  members  were  to  have  been  immediately  transmit- 
ted by  the  secretary  to  all  members.  However,  this  phase  of 
the  plan  was  discontinued  because  many  members  did  not  pub- 
lish price  lists  regularly,  and  the  information  was  not  sufficiently 
complete  to  be  representative.46 

Inspection  reports  were  submitted  to  the  secretary  by  inspect- 
ors who  were  employed  to  check  up  on  the  grading  of  members. 
This  report  to  the  secretary  showed  the  grading  of  the  various 
mills  and  also  the  association  inspector's  grading  on  the  same 
shipments.  It  was  relayed  by  the  secretary  to  all  members. 
The  purpose,  as  expressed  by  the  organizers  of  this  plan,  was 
not  to  change  any  member's  grading,  but  to  furnish  each  mem- 
ber with  a  "basis  upon  which  he  can  compare  his  prices  with 

«Gadd,  F.  R.,  Record,  Vol.  II,  p.  1 107. 

tfSee  copy  of  stock  report,  appendix,  Exh.  10. 

«Gadd,  F.  R.,  Record,  Vol.  II,  p.  1 107. 


295]  THE  LUMBER  INDUSTRY  13  T 

those  of  other  members,  thereby  making  the  price  reports  more 
intelligible  and  accurate."*7 

The  remaining  feature  of  the  plan  was  a  market  report  letter 
which  was  to  have  been  issued  monthly  by  the  Committee  on 
Reports  and  Statistics.  The  intention  was  to  have  the  committee 
give  its  idea  of  the  market  and  incorporate  a  general  analysis 
of  market  conditions.48  However,  the  work  of  getting  out  this 
market  letter  was  turned  over  to  the  secretary.  He  did  not  mail 
out  the  letters  monthly  as  was  provided  for  by  the  original  plan, 
but  issued  them  at  irregular  intervals.  They  were  written  on 
a  great  many  different  subjects  bearing  on  matters  of  business 
interest,  but  in  the  main  they  were  an  expression  of  the  secre- 
tary's understanding  of  industrial  conditions  as  related  particu- 
larly to  the  hardwood  industry. 

These  letters  seem  to  have  been  the  chief  cause  of  the  action 
of  the  Government  in  filing  suit  against  the  members  of  the 
Association.49  The  contention  of  the  Government  was  that  they 
were  written  with  the  purpose  of  inciting  members  to  "boost" 
prices,  and  that  a  conspiracy  existed  among  members  to  effect 
this  end.  The  writer,  having  read  them,  inclines  toward  the 
point  of  view  that  these  letters  did  little  more  than  point  out 
the  actual  conditions  of  the  market.  These  conditions  were  such 
as  would  inevitably  have  led  to  rapidly  rising  prices,  irrespective 
of  any  conspiracy  that  may  or  may  not  have  existed.  The  fol- 
lowing quotation  taken  from  the  report  on  the  lumber  industry, 
made  June  I,  1920,  by  the  Forest  Service  of  the  United  States 
Department  of  Agriculture,  depicts  very  succinctly  conditions  as 
they  prevailed  early  in  1919,  the  time  that  the  Government 
alleges  the  conspiracy  began:  •"" 

"The  termination  of  the  war  found  the  lumber  industry  with 
depleted  stocks.  Production  during  the  war  had  been  much 
less  than  normal  on  account  of  shortages  of  labor  and  equip- 
ment and  embargoes  on  transportation.  A  large  part  of  the 
lumber  produced  had  been  taken  by  the  Government  for  war 
purposes.  During  the  same  time,  the  normal  construction  of 

"Report  of  Open  Competition  Plan,  Record,  Vol.  I,  p.  86. 

"/£»</.,  p.  87. 

"For  an  account  of  the  Hardwood  case,  see  chapter  8,  pp.  1 57-160. 


132  OPEN  PRICE  ASSOCIATIONS  [296 

dwellings  and  industrial  structures  and  the  use  of  lumber  in 
many  manufacturing  industries  had  been  greatly  curtailed.  Fol- 
lowing the  war  these  pent  up  demands  were  released.  They 
caught  the  lumber  industry  not  only  with  its  stocks  short  and 
broken  from  war  conditions,  but  unable  on  account  of  labor 
difficulties,  lack  of  freight  cars,  and  bad  weather  in  important 
producing  regions,  to  respond  rapidly  with  increased  production. 
Aside  from  the  general  causes  affecting  prices  of  most  commodi- 
ties, the  expansion  of  credit  accompanied  by  currency  inflation 
and  the  wave  of  speculation  and  extravagance,  an  'auction' 
lumber  market  would  no  doubt  have  resulted  from  frenzied  com- 
petition of  buyers  to  obtain  the  limited  stocks  available,  wholly 
inadequate  to  satisfy  current  demands. 

"Under  the  combined  influence  of  the  general  conditions  mak- 
ing for  high  prices  and  this  situation  in  the  lumber  industry 
itself,  prices  rose  to  unprecedented  limits.  In  March,  1920, 
average  mill  prices  in  the  South  and  West  had  increased  300 
percent  and  more,  over  the  prices  received  in  1914,  and  average 
retail  prices  in  the  Middle  West  showed  increases  ranging  from 
150  to  200  percent.  In  the  case  of  the  high  quality  hardwoods 
and  other  specialized  products,  the  average  advance  in  eastern 
wholesale  markets  was  from  200  to  250  percent,  and  the  demand 
at  this  advance  was  still  unsatisfied."50 

This  extract  is  written  from  the  point  of  view  of  the  whole 
lumber  industry,  but  the  conditions  named  therein  were  pecu- 
liarly applicable  to  the  hardwood  industry.  Several  hundred 
pages  of  testimony  were  taken  in  the  Hardwood  case,  gathered 
not  only  from  members,  but  from  disinterested  non-members 
and  buyers,  substantiating  the  point  of  view  that  conditions  of 
supply  and  demand  were  such  as  to  produce  a  runaway  market. 
Prices  rose  so  high  that  members  became  alarmed  lest  they 
should  react  unfavorably  on  the  hardwood  industry  by  causing 
purchasers  to  resort  to  substitutes.  Some  of  the  leading  pro- 
ducers attempted  for  a  time  to  stem  the  tide  of  rising  prices  by 
refusing  to  raise  their  own,  but  the  current  was  too  strong  for 

"Report  of  the  Forest  Service  of  the  U.  S.  Department  of  Agriculture,  Timber 
Depletion,  Lumber  Prices,  Lumber  Exports,  and  Concentration  of  Timber  Ownership, 
June  i,  1920,  p.  34. 


297]  THE  LUMBER  INDUSTRY  133 

them,  and  seeing  that  their  efforts  were  of  no  avail,  they  resumed 
the  policy  of  taking  the  price  that  market  conditions  made  it 
possible  to  secure.51  Instances  are  given  where  buyers  offered 
producers  premiums  in  order  to  get  the  stocks  they  so  urgently 
required.  They  bid  against  each  other  for  the  available  stocks.52 
If  there  was  a  conspiracy  to  raise  prices,  it  at  least  did  not 
result  in  raising  the  prices  secured  by  members  to  a  higher  level 
than  those  secured  by  non-members.  A  comparison  of  the  prices 
of  members  and  non-members  discloses  this  fact,  as  does  the 
testimony  of  several  buyers  who  purchased  from  both  classes 
of  producers.53  The  conspiracy,  if  there  was  one,  was  of  an 
innocuous  kind.  In  the  face  of  the  facts  here  reviewed,  it  is 
difficult  to  understand  what  incentive  there  could  have  been  for 
producers  to  conspire  to  raise  prices  when  buyers  were  willing 
to  take  their  stocks  at  any  price,  almost,  that  they  cared  to 
designate,  even  at  times  offering  a  higher  price  than  producers 
were  quoting. 

From  the  standpoint  of  avoiding  prosecution  at  the  hands  of  the 
Government,  at  least,  the  action  of  the  secretary  of  the  American 
Hardwood  Manufacturers'  Association,  in  interpreting  statistics 
to  members  in  such  a  way  as  to  elucidate  to  them  the  course 
of  action  that  their  self-interest  should  lead  them  to  take,  seems 
indiscreet,  and  is  so  regarded  by  the  Eddy  association  secreta- 
ries. The  latter  appear  to  be  careful  not  to  do  more  than 
convey  information  bearing  on  actual  transactions,  leaving  mem- 
bers free  to  come  to  an  independent  decision  regarding  their 
price  and  production  policy.  There  is  no  evidence  that  the 
secretary  attempted  to  influence  members  in  their  price  and 
production  policy  in  any  other  way  than  through  these  market 
letters.  Neither  does  it  appear  that  this  association  has  been 
guilty  of  issuing  price  lists,  with  the  intent  of  bringing  about 

"Ritter,  W.  H.,  Exhibit,  Open  Letter  to  Hardwood  Manufacturers  and  their 
Patrons.  Record,  Vol.  II,  p.  1277. 

^Minutes  of  Meeting  held  at  Cincinnati,  Ohio,  June  10,  1919,  Record,  Vol.  I, 
Exh.  No.  388. 

"See  chart  No.  i,  Chapter  9;  see  also  Dulweber,  B.  F.,  Record,  Vol.  Ill,  p.  1653; 
Bayer,  J.,  Record,  Vol.  Ill,  p.  1617. 


134  OPEN  PRICE  ASSOCIATIONS  [298 

uniformity  among  members  in  their  price  quotations,  as  have 
most  of  the  other  lumber  associations. 

The  failure  of  the  secretary  to  obtain  all  the  data  from  mem- 
bers contemplated  in  the  original  plan  illustrates  how  very  diffi- 
cult it  is  to  operate  successfully  an  open  price  plan  where  the 
association  membership  is  large  and  scattered  over  a  wide  area 
of  territory. 

PUBLIC  AND  ECONOMIC  ASPECTS  OF  THE  LUMBER  INDUSTRY  IN 
THEIR  RELATION  TO  THE  OPEN  PRICE  PLAN 

There  are  certain  serious  evils  attending  the  production  and 
distribution  of  lumber  which  exercise  a  detrimental  effect  not 
only  upon  the  best  interests  of  manufacturers  themselves,  but  also 
upon  those  of  the  public,  in  their  capacity  of  consumers  of  lumber. 
The  aim  of  this  section  will  be  to  discuss,  first,  the  character  of 
these  detrimental  influences,  and  second,  such  remedies  as  seem 
applicable  to  the  situation,  giving  special  emphasis  to  the  role 
that  the  open  price  plan  can  play,  perhaps,  as  a  remedial 
measure. 

The  chief  evils  associated  with  the  lumber  industry  may  be 
traced  back  to  two  leading  sources.  One  finds  its  fountain  head 
in  the  feverish  speculative  activity  in  timber  lands  that  has  gone 
on  in  the  past;  the  other  in  the  character  of  the  industry  itself. 
Disregarding  the  forces  that  have  led  to  this  speculative  activity, 
its  result  has  been  to  build  up  an  excessive  burden  of  timber 
investment.  Excessive  timber  investments  have  created  a  need 
for  meeting  current  charges  thereon.  In  order  to  obtain  the 

funds  with  which  to  meet  these  charges  investors  have  been 
constrained  to  produce  as  much  lumber  for  the  market  as  pos- 
sible, with  the  result  that  the  lumber  industry  has  been  built 
up  beyond  its  needs.54  This  close  alliance  with  timber  specula- 
tion, has  made  lumber  manufacture  "the  tail  of  the  dog,  exist- 
ing not  as  a  business  in  itself,  conducted  on  its  own  merits,  but 
solely  as  a  means  of  getting  rid  of  timber  when  speculative 

MSome  Public  and  Economic  Aspects  of  the  Lumber  Industry,  Report  No.  114, 
by  the  Forest  Service  of  the  Department  of  Agriculture,  issued  Jan.  24,  1917. 
Exhibit  "A,"  Record,  Vol.  II,  p.  1177. 

"Ibid.,  p.  1181. 


299]  THE  LUMBER  INDUSTRY  135 

interests  dictated."55  Excess  mill  capacity,  taken  together  with 
the  burden  of  meeting  obligations  to  pay  interest  on  bond  issues 
and  principal  on  maturing  bonds  have  been  a  pressure  for  the 
steady  running  of  mills  which  has  led  to  periodic  overproduction. 

The  character  of  the  industry  itself,  by  giving  rise,  among 
manufacturers,  to  a  strong  spirit  of  individualism,  has  had  its 
effect  on  the  production  and  distribution  of  lumber.  The  nature 
of  the  industry  has  been  such  as  to  isolate  manufacturers  from 
one  another.  Sawmills  have  been  numerous  and  have  been 
spread  over  a  wide  area  of  territory  because  timber  is  spread 
out  over  a  wide  area,  is  of  great  weight  and  low  value  and  can 
therefore  not  be  shipped  long  distances  to  be  manufactured. 

The  very  spirit  of  self-reliance  and  independence  fostered  by 
the  rough,  physical  conditions  characteristic  of  the  lumber  indus- 
try has  been  a  source  of  weakness  as  well  as  strength.  Not 
being  willing  to  submerge  their  individuality  to  the  extent  of 
acting  together  in  a  common  program,  manufacturers  have 
looked  askance  at  associated  activity  intended  to  better  conditions 
in  the  industry.  Such  associations  as  have  come  into  existence 
have  been  sponsored  chiefly  by  the  more  progressive  and  intel- 
ligent class  of  producers.  They  have  been  very  distinctly  in 
the  minority.  In  consequence  there  has  been  a  lack  of  common 
understanding  concerning  the  situation  in  the  industry.  This 
lack  of  cohesion  in  the  industry  has  been  further  accentuated  by 
the  fact  that  the  lure  of  speculation  has  drawn  into  the  industry 
men  from  many  walks  of  life  differing  widely  in  experience  and 
point  of  view.  The  lack  of  common  understanding  concerning 
the  problems  confronting  the  industry,  growing  out  of  the  failure 
to  cooperate,  has  no  doubt  had  its  influence  in  bringing  about 
periodic  overproduction.56 

One  of  the  best  illustrations  of  this  diversity  in  point  of  view 
is  the  manner  in  which  the  various  producers  have  coped  with 
depressed  market  conditions.  Some  operators  have  met  the 
situation  by  curtailing  their  output;  others  by  running  double 
shift  in  an  effort  to  decrease  cost  of  production.57 

Some  alleviation  from  the  effects  of  overproduction  might  have 

wlbid.,  pp.  1179-1182. 
"Ibid.,  p.  1182. 


136  OPEN  PRICE  ASSOCIATIONS  JJOO 

been  secured  if  operators  only  could  have  known  how  to  widen 
the  market  for  their  product,  but,  engrossed  as  they  have  been 
in  overcoming  the  difficulties  with  which  the  production  of  lum- 
ber has  been  fraught,  they  have  overlooked  the  importance  of 
learning  to  merchandise  their  product  properly. 

What  has  made  matters  worse  is  the  change  that  has  taken 
place  in  the  character  of  consumption.  Operators  have  gone  on 
producing  on  the  assumption  that  there  is  a  more  or  less  fixed 
demand  for  lumber.  As  a  matter  of  fact  the  demand  for  lumber 
has  been  changing  from  year  to  year.  The  use  of  substitutes 
has  been  mainly  responsible  for  the  more  or  less  regular  decline 
in  the  consumption  of  lumber  that  has  been  taking  place  in 
the  past  few  years.58  Ineffective  adjustment  of  output  to  changes 
in  the  volume  of  consumption  is  therefore  another  of  the  reasons 
for  overproduction. 

Periodic  overproduction  has  led  to  severe  price  fluctuations.39 
Occasional  years  of  high  earnings  have  usually  been  followed 
by  periods  of  small  profits  or  actual  losses.  It  may  be  remarked 
in  passing  that  a  small  percentage  of  overproduction  is  sufficient 
to  cause  a  material  drop  in  prices  because  of  the  inelastic  char- 
acter of  the  demand  for  lumber.60  Instability  of  market  condi- 
tions has  been  a  bane  to  operator  and  buyer  alike.  Many  finan- 
cially weak  operators  have  been  forced  to  liquidate  their  invest- 
ments. This  weeding  out  process,  altho  of  value  in  some 
instances,  in  eliminating  inefficient  producers,  may  be  carried  too 
far;  it  may  lead  to  monopoly,  unless  ways  and  means  are  found 
of  protecting  those  who  produce  efficiently  but  find  themselves 
the  victims  of  unstable  market  conditions.  In  some  instances 
buyers  have  declared  that  if  the  open  price  plan  has  the  effect 
of  stabilizing  prices  no  objection  to  its  adoption  among  operators 
will  be  raised  by  them.  What  the  buyer  desires  above  everything 
else  is  a  stable  market.  In  this  connection  the  secretary  of  the 
Ohio  Association  of  Retail  Lumber  Dealers  has  written  the  fol- 
lowing: "I  am  rather  of  the  opinion  that  this  method  of  sta- 
bilizing market  conditions  will  one  day  be  insisted  upon  as 


/</.,  p.  1167. 
•»/«</.,  p.  1134- 
^American  Lumberman,  Oct.  6,  1917. 


THE  LUMBER  INDUSTRY  137 

essential  to  economical  distribution  and  stable  market  condi- 
tions."61 When  prices  fluctuate  severely  buyers  are  uneasy  lest 
their  competitors  shall  succeed  in  buying  their  requirements  at 
a  lower  figure  than  they  have  been  able  to  do,  and  in  conse- 
quence undersell  them. 

The  public  also  feels  the  effects  of  the  unstable  conditions 
resulting  from  periodic  overproduction.  With  a  radical  decline 
of  prices  many  financially  embarrassed  operators  feel  impelled 
to  lower  the  cost  of  production  by  dumping  an  increased  output 
on  the  market.  The  economic  demand  is  not  such  as  to  war- 
rant this  increased  output;  lumber  is  therefore  wasted.  Further 
waste  is  brought  about  because  of  the  fact  that  on  a  declining 
market  it  becomes  unprofitable  to  market  the  lower  grades  of 
lumber,  the  result  being  that  they  remain  unutilized.  In  his 
argument  before  the  Supreme  Court  in  the  Hardwood  case,  Mr. 
Boyle,  attorney  for  the  defendants  said,  "If  you  have  a  declining 
market  in  this  industry,  as  all  of  the  members  of  this  court 
know,  it  must  follow  that  when  you  get  to  the  point  where 
production  cost  is  equal  to  the  price  paid,  only  the  best  part  of 
the  log  will  be  brought  to  the  saw,  and  as  a  result  millions 
upon  countless  millions  of  feet  of  timber  are  wasted  every  year, 
because  they  cannot  afford  to  bring  it  to  the  mill."62  Of  course 
the  public  has  to  foot  the  bill  for  this  waste. 

The  remedies  for  the  situation  that  confronts  the  lumber 
industry  as  pointed  out  in  the  report  of  the  Forest  Service  may 
be  summarized  as  follows:  I.  A  more  adequate  supply  of  capi- 
tal for  the  purpose  of  properly  financing  operations.  2.  Reduc- 
tions in  excess  mill  capacity.  3.  More  efficient  equipment  and 
technical  methods.  4.  Better  use  of  raw  material.  5.  Better 
merchandising  of  the  product.  6.  Sounder  methods  of  account- 
ing. 7.  Current  publication  of  prices.63 

The  work  that  lumber  associations  can  do  in  bringing  about 
improvements  along  the  lines  indicated  above  is  apparently 

"Torrence,  Findley  M.,  Secretary  of  the  Ohio  Association  of  Retail  Lumber 
Dealers,  letter  dated  Dec.  31,  1920. 

°Boyle,  L.  C.,  Oral  Argument  before  the  Supreme  Court  of  the  U.  S.,  American 
Column  &  Lumber  Co.  vs.  U.  S.,  Oct.  20,  1920. 

"Report  dated  Jan.  24,  1917,  Gadd,  Exhibit  "A,"  Record,  American  Column  & 
Lumber  Co.  vs.  U.  S.,  Vol.  II,  pp.  1190-1195. 


138  OPEN  PRICE  ASSOCIATIONS  [302 

deemed  of  considerable  value,  for  the  report  goes  on  to  say:  "A 
number  of  large  trade  organizations  seeking  the  last  word  in  the 
efficiency  of  each  department  would  undoubtedly  benefit  the 
whole  industry  in  extending  its  markets,  exploiting  its  by-pro- 
ducts, and  developing  standards  of  efficiency  in  all  branches. 
And  they  would  unquestionably  benefit  the  public  through  im- 
proved service."64  Following  this  the  report  proceeds  to  name 
and  describe  the  functions  which  such  associations  may  properly 
undertake.  Among  these  prominent  mention  is  made  of  the 
gathering,  compiling,  and  disseminating  of  trade  statistics :  "Cur- 
rent trade  statistics  necessary  to  keep  lumber  manufacturers 
informed  on  'the  condition  of  the  market  .  .  .  include  data  on 
the  volume  of  orders,  shipments,  and  lumber  stocks  on  hand, 
the  prices  which  are  being  paid  for  various  grades,  special  de- 
mands for  certain  grades  or  products,  the  price  and  supply  of 
competing  materials;  in  a  word,  the  information  needed  to  keep 
the  lumber  manufacturer  in  touch  with  the  market  which  he 
supplies."65  Then  follows  a  brief  in  defence  of  open  price  work: 
"This  activity  of  associations  does  not  involve  manufacturers' 
agreements  to  curtail  output  or  fix  prices.  Such  restraints  of 
competition  would  be  facilitated  by  the  statistical  work  of  asso- 
ciations, but  they  are  totally  different  things.  The  function  of 
the  association  is  to  give  each  operator  individually  the  facts 
which  he  needs  to  conduct  his  business  intelligently  in  relation 
to  the  changing  conditions  of  his  market.  This  function  is 
doubly  necessary  when  the  market  is  at  a  great  distance  from 
the  mills. 

"There  is  a  clear  cut  line  between  these  services  to  individual 
operators  through  an  open  price  association  and  activities  in 
restraint  of  trade.  With  adequate  safeguards  the  public  should 
encourage  such  forms  of  cooperation  among  manufacturers  as  a 
necessary  means  of  making  the  lumber  industry  more  efficient. 
The  activities  of  trade  associations  should  be  safeguarded  (i)  by 
the  cooperation  and  control  of  a  responsible  public  agency  like 
the  Federal  Trade  Commission,  and  (2)  by  systematic  publicity."66 

MIt>id.,  p.  1195. 
KIbid.t  pp.  1197-1198. 
"Ibid.,  p.  1198. 


303]  THE  LUMBER  INDUSTRY  139 

In  a  later  report  on  the  lumber  industry  the  Forest  Service 
of  the  Department  of  Agriculture  makes  a  rather  positive  state- 
ment regarding  the  stabilizing  influence  on  prices  of  the  exchange 
of  price  information,  and  its  consequent  benefit  to  seller  and 
buyer  alike:  "Solely  as  a  matter  of  information,  the  current 
distribution  of  prices  received  by  different  members  of  the  asso- 
ciation tends  to  unify  the  rates  at  which  lumber  is  offered  for 
sale  and  to  make  increases  or  decreases  in  accordance  with  the 
fluctuation  1n  the  market  more  nearly  similar  at  all  producing 
plants.  The  same  information  would  doubtless  be  of  equal  value 
to  buyers  of  lumber,  particularly  to  the  small  buyers  less  able 
to  keep  posted  upon  market  fluctuations,  if  available  to  them."67 

No  doubt  the  public  would  profit  immensely  if  remedies  could 
be  invoked  which  would  prevent  the  tremendous  waste  of  timber 
that  occurs  when,  through  overproduction,  prices  decline  so 
radically  as  to  make  it  unprofitable  for  operators  to  attempt  to 
market  the  lower  grades  of  lumber.  The  exchange  of  informa- 
tion among  producers,  is,  as  the  report  of  the  Forest  Service 
makes  clear,  not  the  sole  remedy,  but  it  certainly  has  a  very 
important  part  to  play  in  eliminating  unsatisfactory  conditions. 
This  is  particularly  true  because  it  has  been  found  next  to  impos- 
sible to  arrive  at  the  cost  of  producing  individual  items  of 
lumber.  In  the  logging  operations,  "it  is  almost  impossible  to 
allocate  the  cost  to  the  various  species,  altho  there  is  known 
to  be  a  difference  in  the  cost  of  handling  them,  by  reason  of 
difference  in  the  size  of  the  logs,  the  relative  positions  in  which 
the  various  species  grow  in  the  forest,  etc.  Even  if  such  differ- 
ence could  be  ascertained  so  that  the  logging  cost  would  be 
allocated  properly  to  each  species,  or  even  to  each  log,  the  con- 
tinuity of  this  allocation  could  not  be  maintained,  because  various 
grades  and  sizes  of  lumber  are  produced  from  each  log."68 
Therefore  in  establishing  a  selling  price  for  each  grade  the 
producer  has  no  cost  basis  to  guide  him.  It  costs  no  more  to 

"Report  by  the  Forest  Service,  U.  S.  Department  of  Agriculture,  Timber  Deple- 
tion, Lumber  Prices,  Lumber  Exports,  and  Concentration  of  Timber  Ownership, 
issued  June  i,  1920,  p.  68. 

"Stark,  M.  W.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II, 
p.  1 246. 


I4O  OPEN  PRICE  ASSOCIATIONS  [304 

produce  the  better  grades  than  it  does  the  poorer,  but  a  consid- 
erable proportion  of  the  latter  will  not  bring  a  price  that  will 
cover  the  cost  of  production.  In  order  to  secure  a  profit  a  good 
enough  price  must  be  obtained  for  the  better  grades  to  insure 
that  the  average  price  received  on  all  varieties  of  grades  and  kinds 
is  higher  than  the  average  cost  of  production.69  It  is  clear  from 
these  statements  that  in  establishing  a  selling  price  for  each  grade 
the  producer  has  a  very  inadequate  cost  basis  to  guide  him. 
Finding  that  he  cannot  use  costs  as  a  proper  basis  for  determin- 
ing selling  price,  he  is  at  sea  regarding  a  solution,  unless  he  can 
obtain  information  of  a  kind  that  will  give  him  an  idea  of  the 
trend  of  the  market.  Hence  he  finds  that  a  knowledge  of  con- 
ditions, such  as  is  afforded  him  by  membership  in  an  open,  price 
association  is  a  most  valuable  asset  in  formulating  a  selling  policy. 
No  doubt  a  widespread  knowledge  among  producers  of  the  vital 
market  and  trade  statistics  would  go  a  long  way  toward  elimi- 
nating the  conditions  which  are  responsible  for  the  maladjustment 
of  demand  and  supply,  and  which  leave  a  heritage  of  economic 
waste  that  must  be  borne  by  the  public.  Being  well  informed, 
producers  probably  would  find  it  to  their  interest  to  direct  their 
production  in  such  a  way  as  to  bring  about  a  more  normal  ad- 
justment of  supply  to  demand.  If,  for  instance,  they  should 
find  that  the  stocks  of  a  certain  item  are  low,  and  orders  seem 
to  be  well  sustained,  they  would  undoubtedly  accentuate  produc- 
tion of  that  item  in  the  hope  of  getting  the  benefit  of  higher 
prices  that  might  be  expected  to  result  from  the  low  condition  of 
stocks.  On  the  other  hand,  if  orders  for  an  item  should  show 
signs  of  declining,  while  stocks  seemed  to  be  well  supplied,  and 
in  reflection  of  these  conditions,  prices  should  show  signs  of 
sagging,  no  doubt  the  well  informed  producers  would  cut  down 
production  of  the  item  affected.  In  the  one  case,  where  produc- 
tion is  stimulated,  a  stringency  of  supply,  accompanied  by  an 
abnormally  high  price,  is  prevented.  In  the  other  case,  where 
production  is  diminished,  an  oversupply,  accompanied  by  an  ab- 
normally low  price,  is  prevented.  In  other  words,  supply  comes 
to  be  adjusted  to  demand  at  more  or  less  normal  price  levels.  As 

"Ibid.,  p.  1247. 


305]  THE  LUMBER  INDUSTRY  141 

a  consequence  the  sudden  dips  of  prices  that  have  so  often  made 
it  unprofitable  to  attempt  to  market  any  but  the  best  grades  of 
lumber  tend  to  be  eradicated.  With  prices  confined  to  normal 
levels,  the  prospects  for  profitably  marketing  the  poorer  grades 
are  greatly  enhanced.  On  the  assumption  that  this  is  the  result, 
the  public  profits  thereby  through  the  conservation  of  its  timber 
resources. 


CHAPTER  VIII 
REGULATORY  ASPECTS  OF  OPEN  PRICE  ACTIVITY 

The  aim  in  this  chapter  is  not  to  pass  an  opinion  upon  the 
legality  of  the  open  price  plan,  but,  first,  to  call  attention  to  such 
court  cases  as  attorneys  consider  have  a  bearing  on  the  plan; 
second,  to  review  such  opinions  relative  to  the  plan  as  may  have 
been  expressed  by  prominent  members  of  the  legal  fraternity; 
third,  to  briefly  recount  activities  engaged  in  by  so-called  open 
price  associations  that  may  be  considered  in  contravention  of 
law  and  suggested  remedies  for  these  abuses;  fourth,  to  interpret 
the  attitude  assumed  by  various  departments  of  the  Federal  Gov- 
ernment toward  the  plan. 

Members  of  the  open  price  associations  are  in  a  quandary  as 
to  their  standing  before  the  law.  The  question  at  issue  is  whether 
the  activities  of  these  associations  are  in  violation  of  State  and 
Federal  anti-trust  laws.  Perhaps  the  fundamental  proposition 
involved  reduces  itself  to  this  question:  are  members  within 
their  lawful  rights  in  associating  for  the  purpose  of  furnishing 
each  other  with  accurate  information  of  conditions  in  the  industry 
in  which  they  are  engaged,  including  stocks  on  hand,  rate  of 
production,  and  prices  at  which  the  product  has  been  sold,  and 
does  such  association  cease  to  be  lawful  because,  being  informed 
by  the  knowledge  so  obtained,  but  without  agreement  of  any  kind, 
the  individual  members  may  ask  different  prices  or  produce  in 
different  quantities,  than  they  would  have  done  had  they  not 
been  so  informed? 

For  the  first  time  an  opportunity  has  been  afforded  the  Supreme 
Court  of  the  United  States  of  determining  the  legality  of  the 
open  price  plan.  The  defendants  involved  are  the  members  of 
the  American  Hardwood  Manufacturers'  Association.  They  made 
an  appeal  from  the  final  decree  of  the  District  Court  in  the  West- 
ern District  of  Tennessee,  Western  Division,  in  a  proceeding 

142 


307]  REGULATORY  ASPECTS  143 

brought  by  the  United  States  under  the  Sherman  Anti-Trust  Act, 
to  enjoin  them  from  continuing  an  alleged  combination  to  enhance 
the  price  of  hardwood  lumber.  There  were  329  corporations, 
firms,  and  individuals  involved.  All  were  members  of  the  "Open 
Competition  Plan"  of  the  association.  The  alleged  conspiracy 
to  enhance  prices  began  in  January,  1919,  and  continued  to  the 
date  of  the  filing  of  the  bill  of  complaint  in  February,  1920. 

The  alleged  means  of  accomplishing  this  conspiracy  may  be 
briefly  described  as  follows: 

1.  Compiling  and  distributing  monthly  stock  reports  and  pro- 
duction reports. 

2.  Printing  and   distributing   monthly  bulletins   which  called 
attention   to   a   shortage   of   hardwood   lumber   and   admonished 
members  to  exact  higher  prices,  but  not  to  meet  the  shortage  by 
increasing  production. 

3.  Compiling  and  distributing  weekly  sales  reports. 

4.  Printing   and   distributing   a   bulletin   containing   excerpts 
from   commendatory   letters    which   the   secretary    received  from 
members,  and  which  were  alleged  to  have  been  explanations  by 
members  of  the  manner  in  which  the  reports  of  sales  were  used  in 
enhancing  future  prices. 

5.  Discussing  prices  at  monthly  group  meetings  "so  as  to  pro- 
duce mutual  approval  for  high  prices  received,  and  mutual  oral 
predictions  that  high  prices  would  continue." 

6.  Compiling  and  distributing  monthly   replies   to  question- 
naires "constituting  an  exchange  of  written  predictions  by  the 
defendants  that  prices  would  continue  high."1 

The  main  attack  of  the  Government  was  directed  at  the  market 
letters  which  the  Manager  of  Statistics  issued  to  members  at 
irregular  intervals.  The  defendants  in  their  answer  admitted 
that  they  were  exchanging  information  of  the  kind  described  in 
the  bill  of  complaint  but  denied  that  this  activity  was  carried  on 
as  a  means  of  accomplishing  by  collusion  the  enhancement  of 
prices  or  the  curtailment  of  production. 

The  judge  in  the  case  decided  that  there  was  "a  common  note 
running  through  all  the  evidence,"  namely  "increase  in  prices," 

lBriefJor  the  United  States,  American  Column  &  Lumber  Co.,  et  al.  vs.  U.  S., 
PP.  2,  3- 


144  OPEN  PRICE  ASSOCIATIONS  [308 

and  therefore  granted  an  injunction  which  permanently  forbade 
defendants  to  participate  in  any  open  price  activity. 

On  appeal,  the  case  went  direct  to  the  Supreme  Court.  Hear- 
ings were  held  on  October  20,  1920.  Apparently  the  Court  has 
not  been  satisfied  with  the  evidence  then  presented  because  there 
is  to  be  a  rehearing  on  April  nth,  1921.  Business  men  who  are 
interested  in  the  open  price  plan  hope  that  the  Court  will  give 
the  question  of  legality  of  the  open  price  plan  a  broad  and  com- 
prehensive treatment  and  that  some  fixed  general  rules  of  a  con- 
structive nature  will  be  laid  down  which  will  make  clear  to  what 
extent  cooperation  may  be  legitimately  carried  on. 

To  enter  into  the  merits,  pro  and  con,  of  the  Hardwood  case 
from  a  legal  point  of  view  would  lead  the  writer  into  a  ramifica- 
tion of  legal  discussion  such  as  he,  as  a  layman,  does  not  feel 
competent  to  undertake.2  At  all  events  it  is  thought  that  such  a 
discussion  would  lead  away  from  the  real  point  at  issue,  namely 
the  legality  of  the  open  price  plan  taken  in  the  abstract.  The 
reason  for  this  point  of  view  is  that  the  charges  made  by  the 
Government  against  members  of  the  American  Hardwood  Man- 
ufacturers' Association  may  be  regarded  as  being  directed,  not 
against  the  plan  as  conceived  by  Mr.  Eddy,  but  against  an  abuse 
of  the  plan.  Statements  were  made  in  meetings  and  bulletins 
which  the  Government  alleges  were  evidence  of  a  conspiracy  to 
suppress  competition.  These  statements  were  not  necessary 
accompaniments  of  the  open  price  plan.  In  fact,  it  is  thought  that 
an  open  price  association  under  the  guidance  of  Mr.  Eddy  or  his 
associates  would  never  have  allowed  loose  statements  of  the  kind 
made  by  the  Manager  of  Statistics  and  members  of  the  Hardwood 
association  to  gain  currency.  The  Government  took  occasion  to 
condemn  the  open  price  plan  because  it  seemed  to  be  the  instru- 
ment by  which  the  alleged  conspiracy  was  consummated.  If  it  was 
so  used  it  constituted  an  abuse  of  the  plan.  Even  if  the  court 
did  establish  that  the  plan  was  so  abused,  that  fact  could  not  be 
regarded  in  the  light  of  a  demonstration  that  the  plan  when  not 
so  abused  would  be  illegal.8 

2In  ch.  7  is  a  short  discussion  to  the  effect  that  the  rise  in  price  of  hardwood 
lumber  can  be  explained  by  attributing  it  to  natural  causes.     See  pp.  145-148. 
'Felix  H.  Levy,  a  prominent  attorney  of  New  York  City,  states  in  a  letter  to  the 


309]  REGULATORY  ASPECTS  145 

The  writer,  however,  does  feel  justified  in  recording  an  objec- 
tion to  the  method  employed  by  the  Government  in  presenting 
its  evidence  in  the  Hardwood  case.  Isolated  excerpts  from  letters 
or  minutes  of  meetings  were  cited  or  quoted,  and  then  strung 
together  so  as  to  fit  in  with  the  theory  of  the  Government.  As 
a  result,  in  reading  the  evidence,  one  gets  an  entirely  different 
conception  of  its  character  than  he  would  if  the  phrases  were  read 
in  connection  with  their  context.  In  many  instances  the  evidence 
so  presented  is  grossly  distorted  or  misleading — as  one  will  discern 
by  reading  the  letters  or  minutes  of  the  meetings  themselves. 

DECISIONS  APPLICABLE  TO  THE  OPEN  PRICE  SYSTEM 

Barring  the  opinion  handed  down  by  the  Missouri  Supreme 
Court  in  the  Yellow  Pine  case,4  such  case  law  as  seems  to  touch 
on  the  legality  of  open  price  work  is  limited  to  opinions  rendered 
in  the  lower  Federal  courts.  In  the  Hardwood  case  Judge  McCall, 
who  handed  down  the  decision,  did  not  state  under  what  circum- 
stances, if  any,  open  price  work  would  be  considered  legal.  He 
confined  his  remarks  to  a  condemnation  of  the  criminal  acts 
alleged  to  have  been  committed,  these  being  of  a  character  that 
may  properly  be  designated  as  an  abuse  of  the  open  price  plan.5 

The  opinion  most  often  cited  by  proponents  of  the  open  price 
plan  as  indicating  specific  approval  of  this  character  of  activity 
was  given  by  Judges  Buffington,  Hunt,  McPherson,  and  Wooley 
in  the  famous  Steel  case.  In  commenting  on  the  Gary  Dinners 
they  quoted  with  approval  the  Government's  concession  in  the 
original  petition:  "It  is  not  here  alleged  that  merely  assembling 
and  mutually  exchanging  information  and  declaration  of  purpose 
amount  to  an  agreement  or  a  combination  in  restraint  of  trade," 
and  added,  "when  the  business  is  manufacturing,  of  course  all 

writer,  "You  will  find  that  the  matters  complained  against  by  the  Government 
went  far  beyond  the  usual  procedure  commonly  described  as  'open  competition*. 
Therefore  the  decision  of  the  Court  in  overruling  the  demurrer  cannot  be  deemed 
to  mean  a  specific  finding  of  illegality  against  the  'open  competition'  principle." 

4For  an  extended  account  of  this  case  see  ch.  7,  pp.  132-137. 

6See  opinion  of  Judge  McCall,  Dist.  Court  of  U.  S.  Western  District  of  Tenn. 
Western  Division,  in  equity  No.  751;  U.  S.  vs.  American  Column  &  Lumber  Co. 
et  al.,  p.  61. 


146  OPEN  PRICE  ASSOCIATIONS  [310 

this  has  a  direct  bearing  on  the  subject  of  prices,  and  these  con- 
ferences may  therefore  consider  that  subject  specifically."6  How- 
ever, the  judges  went  further  than  this,  and  made  it  clear  that 
it  would  be  permissible  for  individuals  who  were  really  acting 
for  themselves  to  make  announcement  of  future  prices  but  im- 
plied that  what  may  be  granted  to  an  individual  may  be  denied 
an  association  of  individuals.  The  language  used  was  as  follows: 
"And  if  each  individual  should  choose  to  announce  at  such  a 
meeting  the  specific  price  he  intends  to  charge  for  his  wares,  we 
are  aware  of  no  law  that  forbids  him  so  to  do.  But  at  this  point 
we  approach  debatable  ground,  for  an  individual  is  permitted  to 
do  some  things  that  are  denied  to  an  association  of  individuals.7 
In  concluding  this  phase  of  the  opinion,  *it  was  stated  that  a  de- 
cision as  to  the  legality  of  this  procedure  would  depend  upon  the 
fact  as  to  whether  the  action  in  announcing  future  prices  "was 
really  taken  by  each  individual  acting  for  himself,  or  whether 
those  present  were  in  fact  pursuing  a  common  object."8 

Attorneys  associated  with  open  price  associations  have  con- 
strued this  opinion  to  mean  that  there  exists  an  implied  distinc- 
tinction  between  past  and  future  prices.  Mr.  Eddy  constructed 
the  open  price  plan  on  the  theory  that,  altho  a  discussion  and 
declaration  of  intent  as  to  future  prices  in  all  probability  would 
result  in  an  agreement  as  to  future  prices,  no  such  danger  would 
be  confronted  if  discussions  and  declarations  were  confined  to 
past  prices.  However,  it  may  be  interpolated  that  this  line  of 
distinction  might  become  exceedingly  fine.  As  the  Manager  of 
Statistics  of  the  American  Hardwood  Manufacturers'  Association 
once  remarked,  "If  you  know  what  your  competitor  has  done 
up  to  last  week  or  last  night,  you  are  pretty  close  to  knowing 
what  he  will  do  tomorrow  and  you  can  act  accordingly,  with 
intelligence  and  wisdom."9 

6U.  S.  vs.  U.  S.  Steel  Corporation,  223  Fed.  Rep.,  154-155;  also  Todd,  G.  C., 
Argument  before  the  Supreme  Court,  Oct.  20  1920,  American  Column  &  Lumber 
Co.  vs.  United  States. 

7I6itJ.,  p.  155. 

*Ibid.y  p.  155. 

*  Annual  Report  of  the  Manager  of  Statistics,  Dec.  1919,  American  Lumberman, 
Dec.  20,  1919. 


31 1]  REGULATORY  ASPECTS  147 

In  the  Chicago  Board  of  Trade  Case10  the  court  stated:  "It 
is  an  unhealthy  condition  of  affairs  where  men  are  compelled  to 
buy  and  sell  without  adequate  knowledge  of  actual  market  condi- 
tions." In  this  case  it  was  decided  that  a  rule  adopted  by  the 
Chicago  Board  of  Trade  fixing  the  price  at  which  members 
should  buy  grain  from  country  dealers  and  farmers  between  the 
closing  of  the  exchange  on  one  day  and  the  opening  on  the  next 
did  not  have  the  effect  of  suppressing  or  destroying  competition, 
but  only  to  reasonably  regulate  it.  One  of  the  grounds  for  sus- 
taining this  rule  was  that  it  purposed  to  correct  evils  that  had 
resulted  from  ignorance  of  market  conditions.11  This  decree  is 
often  cited  by  attorneys  representing  open  price  associations  in 
support  of  their  assertion  that  even  tho  it  be  true  that  open  price 
work  has  a  regulatory  effect  on  competition,  the  illegality  of  such 
activity  is  therefore  not  established,  because  as  was  stated  in  the 
Steel  case,  the  Sherman  Act  "  'does  not  compel  competition,  nor 
require  all  that  is  possible.'  "12  Attorneys  for  open  price  asso- 
ciations contend  that  the  only  manner  in  which  open  price  work 
"regulates"  competition  is  in  the  sense  of  enabling  members  to 
determine  their  price  and  production  policy  in  the  light  of  accu- 
rate knowledge  of  conditions  in  the  industry. 

In  the  case  of  the  United  States  vs.  Reading  Company  it  was 
disclosed  that  there  had  been  an  exchange  of  information  among 
carriers  and  producers  of  anthracite  coal  under  the  auspices  of 
"The  Bureau  of  Anthracite  Coal  Statistics."  To  this  bureau 
members  reported  monthly  their  tonnage,  their  sales  at  New 
York  Harbor  and  Brooklyn  and  prices  charged.  From  these 
data  the  secretary  of  the  bureau  made  up  a  composite  report 
showing  the  tonnages,  sales  at  New  York  Harbor  and  Brooklyn, 
and  the  prices  of  each  member.  The  report  was  sent  to  members 
of  the  plan.  The  court  held  that  this  arrangement  was  not  in 
violation  of  law.18 

10246  U.  S.,  231. 

"Board  of  Trade  of  Chicago  vs.  U.  S.,  246  U.  S.,  231,  quoted  in  Brief,  American 
Column  &  Lumber  Co.  vs.  U.  S.,  p.  52. 

UU.  S.  vs.  U.  S.  Steel  Corporation,  223  Fed.  Rep.,  quoted  in  argument  of  Todd, 
G.  C.,  before  Supreme  Court,  Oct.  20,  1920,  American  Column  &  Lumber  Co.  vs. 
U.S. 

"U.  S.  vs.  Reading  Company,  183  Fed.  Rep.,  quoted  in  Argument  of  Todd, 


148  OPEN  PRICE  ASSOCIATIONS  [3  12 

In  the  case  of  the  United  States  vs.  Aileen  Coal  Co.  et  al,  it 
was  charged  that  members  had  combined  to  enhance  the  price 
of  coal  by  agreement.  One  item  of  evidence  related  to  the 
exchange  of  information  among  members  regarding  their  sales 
and  prices.  In  giving  his  instructions  to  the  jury,  Judge  Grubb 
said  in  part  as  follows: 

"It  is  the  right  of  every  man  in  business  involving  the  sale 
of  his  product  to  seek  to  acquire  as  full  information  as  to  the 
conditions  in  the  market  in  which  he  is  selling  his  product  as 
he  can,  and  it  is  also  entirely  within  the  right  of  persons  in  the 
trade  to  share  that  information  openly  among  themselves.  Nor 
does  the  mere  fact  that  they  accompanied  this  interchange  of 
information  with  statements  as  to  what  each  expects  to  try  to 
obtain  for  his  product  in  itself  constitute  such  action  a  combi- 
nation within  the  meaning  of  this  Act."14 

In  the  case  of  the  State  vs.  Arkansas  Lumber  Co.,  the  court 
held:  "If  in  the  instant  case  there  had  been  touching  this  price 
current  matter  no  antecedent  unlawful  acts  of  the  Yellow  Pine 
Association,  if  this  association  had  not  for  years  promulgated  as 
current  prices  lists  which  falsely  represented  and  arbitrarily  fixed 
the  prices  of  yellow  pine  lumber  pursuant  to  the  adopted  report 
of  a  committee  on  values,  and  if  Smith,  the  secretary  of  the 
association,  pursuing  the  lawful  methods  originated  by  him  of 
obtaining  reports  from  correspondents  of  actual  sales,  had  fairly 
compiled  and  averaged  such  reports  into  a  list  of  current  prices 
of  yellow  pine  lumber,  we  would  not  say  that  Smith's  acts  or 
the  acts  of  the  association  in  his  behalf  were  unlawful."15 

In  the  case  of  the  United  States  vs.  the  Eastern  States  Retail 
Lumber  Dealers'  Association,  the  principle  was  laid  down  that 
when  information  is  exchanged  for  the  obvious  purpose  of  sup- 
pressing competition  or  raising  prices,  it  becomes  illegal  to 
distribute  such  information.  The  defendants  who  were  retail 
lumber  dealers  compiled  and  distributed  among  themselves  from 

G.  C.,  before  Supreme  Court,  Oct.  20,  1920,  American  Column  &  Lumber  Co.  vs. 
U.S. 

"U.  S.  vs.  Aileen  Coal  Co.  et  al.,  U.  S.  District  Court,  Southern  District  of  N.  Y., 
Brief  for  Appellants,  American  Column  &  Lumber  Co.  vs.  U.  S.,  p.  64. 

"State  vs.  Arkansas  Lumber  Co.,  169  S.  W.,  177. 


313]  REGULATORY  ASPECTS  149 

time  to  time  lists  of  manufacturers  of  lumber  and  wholesale 
dealers  who  sold  directly  to  consumers.  The  object  in  doing  so 
was  "to  cause  retailers  receiving  these  reports  to  withhold  their 
patronage  from  listed  concerns."  The  court  held  that  this  object, 
namely  to  boycott  those  who  sold  direct  to  consumers,  was 
illegal,  and  members  were  enjoined  from  continuing  to  distribute 
this  class  of  information.16  A  similar  decision  was  handed  down 
in  a  case  involving  members  of  the  Northwestern  Lumbermen's 
Association,  i.  e.  United  States  vs.  Hollis  et  al,  where  the  pur- 
pose also  was  to  prevent  manufacturers  and  wholesalers  from 
selling  direct  to  consumers.17 

The  cases  here  reviewed  were  brought  into  evidence  by  the 
defence  in  the  Hardwood  case  in  an  attempt  to  prove  the  valid- 
ity of  the  furnishing  of  information  through  the  medium  of  an 
open  price  association  when  the  object  is  merely  to  keep  mem- 
bers posted  on  market  conditions,  no  purpose  of  using  such  in- 
formation to  restrain  trade  being  in  contemplation.  The 
Government  cited  no  decisions  involving  the  question  as  to  the 
validity  of  exchanging  information  through  the  medium  of  a 
trade  association.  The  cases  cited  may  therefore  probably  be 
considered  representative  of  the  drift  of  court  opinion.  The 
legality  of  the  practise  has  apparently  been  sustained  in  every 
case.  These  decisions  may,  of  course,  be  disregarded  in  the 
opinion  which  it  is  expected  the  Supreme  Court  will  hand  down 
in  the  near  future. 

EXPOSITIONS  OF  THE  LAW  RELATING  TO  THE 

OPEN  PRICE  PLAN 

Turning  to  a  consideration  of  the  point  of  view  of  attor- 
neys, a  considerable  number  hold  that  the  collection  and  dis- 
tribution of  business  statistics  through  the  medium  of  an  open  price 
association,  when  properly  conducted,  is  legal  beyond  doubt. 
Mr.  Arthur  Jerome  Eddy,  the  "father"  of  the  open  price  plan, 
was  to  the  time  of  his  death18  the  most  conspicuous  defender  of 

"Eastern  States  Retail  Lumber  Dealers  Association  vs.  U.  S.,  234  U.  S.  600, 
quoted  in  Brief  for  Appellants,  American  Column  &  Lumber  Co.  vs.  U.  S.,  p.  71. 

"246  Fed.,  Rep.,  61 1 ,  quoted  in  Brief  for  Appellants,  American  Column  &  Lumber 
Co.  vs.  U.  S.,  p.  71. 

"Mr.  Eddy  died  in  July,  1920. 


I5O  OPEN  PRICE  ASSOCIATIONS 

the  plan.  Others  are  Judge  Dickinson,  who  was  prosecutor  for 
the  Government  in  the  Steel  case;  Mr.  Elmer  H.  Adams,  of 
Adams,  Childs,  Bobb  &  Westcott,  Chicago;  Mr.  B.  K.  McCloskey, 
of  Kinnear,  McCloskey  and  Best,  Pittsburgh;  Mr.  Henry  A. 
Wise,  late  United  States  District  Attorney,  New  York  City;  Mr. 
Rush  C.  Butler,  of  Butler,  Lamb,  Foster  and  Pote,  Chicago;  Mr. 
Wm.  J.  Mathews,  of  Wetton,  Mathews  &  Pegler,  Chicago;  Mr. 
James  L.  Bruff,  New  York  City;  Mr.  Clark  McKercher,  former 
assistant  to  the  United  States  Attorney  General,  of  McKercher 
&  Link,  New  York  City;  and  W.  F.  Lehmann,  of  Lehmann  and 
Lehmann,  St.  Louis. 

What  is  considered  the  most  famous  exposition  of  the  law 
relating  to  open  price  activity  is  that  which  Mr.  W.  F.  Lehmann 
gave  to  the  secretary  of  the  Yellow  Pine  Manufacturers'  Asso- 
ciation, in  a  letter  dated  April  8,  1909.  Mr.  Joseph  E.  Davis, 
Commissioner  of  Corporations,  regarded  this  exposition  of  suffi- 
cient worth  to  incorporate  in  the  volume  devoted  to  "Trust  Laws 
and  Unfair  Competition"  which  came  out  as  a  publication  of  the 
Bureau  of  Corporations  of  the  Department  of  Commerce,  March 
15,  1915.  The  Commissioner  describes  Mr.  Lehmann  as  "an 
eminent  member  of  the  American  bar."19  As  far  as  the  writer's 
observation  goes,  expositions  of  the  law  contributed  by  other 
attorneys  have  been  essentially  a  rehash  of  the  arguments  pre- 
sented in  this  document.  Because  of  its  importance,  as  embody- 
ing the  interpretation  put  upon  the  law  by  a  large  number  of 
prominent  attorneys  who  firmly  believe  in  the  validity  of  the 
open  price  plan,  it  is  here  given  in  full: 

"Mr.  George  K.  Smith, 
St.  Louis,  Missouri. 

"Dear  Sir:  I  have  given  due  consideration  to  the  matters  we 
talked  about  on  Tuesday  and  have  found  no  occasion  to  change 
the  opinion  then  expressed. 

"You  have  the  undoubted  right  to  collect  and  distribute  the 
fullest  information  you  can  get  of  what  is  being  done  in  the 
lumber  field,  with  all  details  as  to  the  amount  of  production  from 
day  to  day,  the  stock  on  hand,  prices  asked  and  received,  etc., 

"Davis,  Joseph  E.,  Trust  Laws  and  Unfair  Competition,  p.  715. 


315]  REGULATORY  ASPECTS  151 

and  every  man  who  receives  this  information  has  the  right  to  act 
upon  it  as  he  thinks  proper.  If  he  thinks  more  is  being  produced 
than  can  be  sold,  he  can  reduce  the  amount  of  his  cutting,  or  cease 
cutting  altogether  if  he  chooses,  until  conditions  improve. 

"Beyond  this,  however,  you  can  not  go.  There  can  be  no 
agreement  or  understanding  between  two  or  more  lumbermen 
to  limit  their  production  and  therefore  no  course  of  conduct 
from  which  such  an  agreement  could  be  inferred  by  a  court  or 
a  jury. 

"If  some  man  should  go  from  one  lumberman  to  another  getting 
from  each  a  statement  or  a  promise  that  he  would  limit  his 
output  in  the  future  and  what  each  man  thus  said  was  com- 
municated to  the  others,  and  if  this  were  followed  by  a  limita- 
tion of  the  output,  a  court  or  a  jury  would  be  very  likely  to 
infer,  despite  all  protestations  to  the  contrary,  that  the  limita- 
tion of  output  was  the  result  of  an  agreement  or  understanding. 

"So,  too,  if  one  lumberman  after  another  declares  that  he 
will  hereafter  curtail  his  production  and  they  inform  each  other 
of  this  purpose  and  then  act  in  accordance  with  their  declara- 
tions, a  court  or  a  jury  would  be  very  likely  to  infer  that  this 
was  all  in  pursuance  of  an  agreement  or  understanding. 

"What  is  in  fact  being  done,  each  and  all  have  a  right  to 
know.  This  is  no  more  than  is  done  every  day  by  the  market 
reports  in  our  newspapers.  They  show,  for  example,  the  daily 
receipts  of  grain  and  livestock,  the  prices  received,  information 
as  to  the  visible  supply,  etc.,  and  farmers  individually  govern 
themselves  accordingly.  The  man  not  pressed  for  money  does 
not  ship  his  grain  or  livestock  to  a  glutted  market.  The  lumber- 
man may  undoubtedly  get  like  information  as  to  his  business 
and  may  determine  his  conduct  by  it. 

"But  the  action  based  upon  this  information  must  be  individual 
and  independent.  If  he  concludes  for  himself  that  the  market 
is  overloaded  and  that  he  cannot  produce  at  a  profit,  he  may 
curtail  or  cease  producing  altogether  and  for  as  long  a  time 
as  he  pleases,  but  if  he  concludes  that  he  will  continue  as  he 
is  doing,  unless  his  competitors  will  also  curtail  or  cease  pro- 
duction, and  there  is  a  curtailment  or  a  cessation  as  a  result 


152  OPEN  PRICE  ASSOCIATIONS  [316 

of  any  sort  of  a  preconcert,   agreement  or  understanding,  the 
law  is  violated. 

"The  conditions  of  the  trade,  however  bad;  the  price  of 
lumber,  however  low;  the  persistence  of  lumbermen  in  cutting 
an  amount  above  the  market  demands  will  not  legalize  an 
agreement  among  any  number  of  them  to  limit  the  output  of 
their  commodity  or  to  fix  the  price  of  it.  The  policy  of  the 
law  is  free  competition  and  it  plainly  requires  that  each  pro- 
ducer shall  conduct  his  business  independently  of  any  compact 
with  his  competitors.  This  does  not  prohibit  any  producer  from 
taking  into  account  all  the  conditions  of  business  in  determining 
his  own  conduct,  and  it  does  not  forbid  cooperation  for  the  pur- 
pose of  obtaining  information  that  is  useful  to  each  and  all. 

"I  repeat,  however,  that  beyond  the  collection  and  distribution 
of  information  as  to  what  is  being  done,  you  cannot  go,  and  can 
not  state  too  strongly  that  any  agreement  or  understanding,  no 
matter  how  indirect  the  means  by  which  it  is  brought  about,  falls 
under  the  ban  of  the  law.20 

"Respectfully  yours, 

F.  W.  LEHMANN." 

Some  attorneys  apparently  believe  that  the  operation  of  the 
open  price  plan  must  inevitably  lead  to  a  violation  of  the  law 
because  the  plan  provides  exceptional  facilities  for  the  accom- 
plishment of  illegal  acts,21  but,  as  far  as  the  writer's  observation 
goes,  few,  if  any,  take  the  ground  that  the  open  price  plan,  con- 
sidered in  the  abstract,  is  in  and  of  itself  illegal. 

The  practise  of  members  exchanging  price  lists  through  the 
medium  of  a  secretary,  regarded  in  many  quarters  as  an  integral 
part  of  the  open  price  plan,  and  engaged  in  by  fully  as  many 
associations  as  pursue  the  other  method  of  reporting  only  actual 
transactions,  has,  however,  met  with  disapproval.  Mr.  Eddy, 
the  "father"  of  the  open  price  plan,  is  among  those  who  declare 
the  interchange  of  price  lists  to  be  illegal.  During  the  Babson 

"Davis,  Joseph  E.,  Trust  Laws  and  Unfair  Competition,  p.  715. 

MMr.  Samuel  Untermyer,  an  attorney  of  repute  practising  in  New  York  City, 
holds  this  point  of  view.  See  Hearings  before  the  New  York  Joint  Legislative 
Committee  on  Housing,  Record,  pp.  4598-4666. 


317]  REGULATORY  ASPECTS  I  S3 

conference  on  Cooperative  Competition  held  in  October,  1914, 
various  open  price  plans  then  in  operation  were  discussed  and 
a  final  composite  opinion  of  a  plan  which  would  cover  many 
lines  of  business  was  drawn  up.  Section  three  of  the  plan  pro- 
vided that  "Each  member  shall,  without  previous  consultation 
or  agreement  upon  the  subject  with  any  other  member,  make  up 
a  price  list  of  net  prices  or  discounts  as  each  class  of  goods  may 
require,  which  shall  be  the  lowest  prices  at  which  he  cares  to 
sell,  and  forward  such  list  to  the  secretary  before  a  date  to  be 
specified  by  vote  of  the  Association."22  Mr.  Eddy  criticized  this 
provision  as  follows:  "In  my  opinion  the  law  does  not  permit 
the  filing  of  price  lists  as  provided  in  this  paragraph,  and  plans 
along  these  lines  have  been  severely  criticized.  I  know  of  no 
authority  which  permits  members  of  an  association  to  file  a  list 
of  prices,  either  lowest  or  highest,  'at  which  he  cares  to  sell!'"23 
Upon  the  receipt  of  these  lists  the  plan  provided  that  the  secre- 
tary should  make  up  a  composite  list,  stating  thereon  "the  lowest 
comparative  prices  found  on  any  of  the  individual  lists  submitted 
to  him,"  and  immediately  send  a  copy  of  this  list  of  lowest  prices 
to  each  member  of  the  Association.24  Mr.  Eddy  criticized  this 
provision  as  follows:  "The  precise  duty  of  the  secretary  is  not 
clearly  outlined  in  this  paragraph,  but,  as  worded,  the  paragraph 
is  clearly  open  to  the  objection  that  it  permits  the  issuance  of  a 
more  or  less  arbitrary  list  for  the  guidance  of  the  trade;  and  if 
so,  such  practise  has  been  specifically  condemned  by  the  courts."25 
Mr.  Felix  H.  Levy,  former  Special  United  States  Government 
Attorney,  now  practising  in  New  York  City,  in  a  speech  before 
the  National  Pipe  and  Supplies  Association,  held  at  New  York 
City,  April  22,  1914,  gave  it  as  his  opinion  that  the  interchange 
of  price  lists  was  in  violation  of  the  Sherman  Act.  In  develop- 
ing his  line  of  argument  he  cited  an  instance  where  a  certain 
association  of  manufacturers  of  machinery  devised  a  plan  for 
interchanging  price  lists  through  the  medium  of  their  secretary, 
the  purpose  being,  that  "if  a  buyer  came  and  said  so  and  so  is 

13 Bab son's  Reports  on  Co  operation ,  C.  C-io. 


154  OPEN  PRICE  ASSOCIATIONS  [318 

quoting  a  certain  price,  the  manufacturer  could  look  it  up  and 
tell  whether  or  not  it  was  true."26  The  existence  of  this  practise 
—so  the  argument  runs — implied  that  members  had  faith 
in  the  veracity  of  the  reports  of  prices  contained  in  these 
price  lists.  The  mere  fact  of  the  presence  of  these  prices 
in  the  price  lists  constituted  no  proof  in  itself  of  their  authenticity, 
unless  members  were  in  some  kind  of  agreement  to  abide  by 
them.  In  other  words  there  was  present  an  element  constituting 
a  promise,  express  or  tacit,  to  the  effect  that  members  would 
"stick"  to  the  prices  named  in  their  price  lists.  This,  according 
to  the  exposition  of  Mr.  Levy,  constituted  an  agreement  in  viola- 
tion of  the  Sherman  Anti-trust  Law.27 

Even  the  most  staunch  supporters  of  open  price  associations 
among  attorneys  are  frank  to  admit  that  members  of  open  price 
associations  are  strongly  tempted  by  the  facilities  afforded  them 
through  the  operation  of  the  open  price  system  to  commit  acts 
condemned  by  law.  Some  attorneys  regard  the  open  price  plan 
as  nothing  more  than  a  subterfuge  for  effecting  agreements  to 
enhance  prices.  The  following  record  of  questions  and  answers 
taken  in  the  Hearing  before  the  New  York  Legislative  Committee 
on  Housing  is  illustrative  of  the  points,  first,  that  staunch  de- 
fenders of  the  plan  admit  that  it  really  lends  itself  to  abuse; 
second,  that  the  plan  is  regarded  as  a  cloak  for  the  perpetration 
of  illegal  practises.  Mr.  Samuel  Untermyer  is  conducting  the 
examination.  Mr.  Wm.  J.  Mathews,  a  former  associate  with  Mr. 
Eddy  in  the  practise  of  law,  and  now  counsel  for  several  open 
price  associations  organized  by  Mr.  Eddy  is  on  the  witness  stand: 

Q.  "Do  you  subscribe  to  this:"  reading  from  Mr.  Eddy's 
book,  New  Competition,  page  109:  "'It  is  almost  needless  to 
point  out' — referring  to  these  associations  of  the  character  that 
you  represent — 'that  the  danger  ahead  of  such  frank  and  friendly 
cooperation  is — as  the  law  now  stands  in  this  country — the  agree- 
ment that  suppresses  competition." 

"  'Given  an  association  in  any  trade  or  industry  based  upon 
the  single  agreement  to  exchange  information,  there  would  be  the 
temptation  for  groups  of  members  to  agree  upon  their  bids,  to 

^Domestic  Engineering,  Vol.  LXVII,  May  9,  1914,  p.  203. 
11 1  bid.,  p.  203. 


319]  REGULATORY  ASPECTS  155 

apportion  work  and  so  secure  for  the  time  being  arbitrarily  high 
profits,  by  suppressing  competition.'  You  agree  to  that,  don't 
your"  A.  "Yes,  the  effect  of  that  is  .  .  ,"28 

Q.  "That  that  is  the  temptation  of  these  associations?" 
A.  "That  the  temptation  would  thereby  be  afforded.  *  *  *" 

Q.  Reading:  "'It  is  almost  as  common  to  hear  men  say, 
"We  have  an  association,  but  we  don't  agree  upon  prices.' 

"'  "What  do  you  do?" 

" '  "Why,  I  get  up  and  say,  'My  price  is  so  and  so,'  and  the 
others  get  up  and  say  their  prices  are  so  and  so.' 

" '  "And  the  result  is,  the  price  of  everybody  is  'so  and  so.' 

"  *  "Naturally,  but  we  don't  agree  they  shall  be,  we  just  ex- 
change views  and  let  prices  take  care  of  themselves." ' 

"Do .you  remember  that?"    A.    "Yes." 

Q.  "Do  you  agree  that  that  can  be  done,  that  the  law  is  going 
to  be  whipped  around  the  stump  that  way?"  A.  "No,  Mr.  Un- 
termyer.  .  .  ." 

Q.  "Do  you  agree  to  that?"  A.  "To  the  effect  that  they 
made  statements  as  to  what  their  prices  had  been.  Beyond  that 
I  do  not  agree  that  they  can  state  what  their  prices  will  be.  If 
that  means  that  they  can  state  what  their  prices  shall  be  I  don't 
agree  with  that." 

Q.  "You  are  skating  on  pretty  thin  ice,  aren't  you,  on  that 
proposition?"  A.  "Sure,  it  is  a  very  thin  line." 

Q.  "Pretty  fine  line,  so  fine  it  disappears  when  you  look  at 
it?"  A.  "No,  it  doesn't." 

Q.  "Of  course  you  know  that  business  men  do  not  travel 
across  the  continent  in  order  to  tell  one  another  what  their  prices 
have  been;  don't  you  know  that?  Because  competitors  are  sup- 
posed to  know  what  their  prices  have  been?"  A.  "They  don't 
know  it  and  that's  one  of  the  purposes  of  this  society." 

Q.  "You  think  that  competitors  in  these  great  industries  with 
their  swarms  of  salespeople  out,  one  man  doesn't  know  what  the 
other  man's  prices  are?"  A.  "Sure;  they  find  it  out  very 
quickly." 

Q.     "So  they  don't  get  together  to  suggest  what  their  prices 

"Mathews,  Wm.  J.,  Record,  Hearings  before  the  New  York  Joint  Legislative 
Committee  on  Housing,  p.  4629. 


156  OPEN  PRICE  ASSOCIATIONS  [32° 

are  or  have  been — they  get  together  to  suggest  what  their  prices 
should  be?"  A.  "They  don't  do  that  in  any  of  our 
societies.  *  *  *"29 

Q.  "The  principle  of  the  Eddy  Plan  is  cooperation,  isn't  it?" 
A.  "Yes,  but  not  to  eliminate  competition." 

Q.  "You  are  of  the  opinion,  are  you,  that  there  can  be  coop- 
eration, combination  and  still  competition,  are  you?"  A.  "Yes, 
sir." 

Q.  "It  doesn't  strike  you  that  those  are  absolutely  contradic- 
tory terms,  does  it?"  A.  "It  does  not.  *  *  *  *" 

Q.  "Don't  you  know  that  cooperation  between  competitors  is 
unsafe  to  the  public  unless  it  is  guarded  by  governmental  super- 
vision and  regulation,  so  that  the  public  shall  not  be  taken  ad- 
vantage of;  don't  you  agree  to  that?"  A.  "I  can  see  that  it  can 
be  abused." 

Q.  "Now,  then,  we  have  at  present  no  governmental  regula- 
tions over  competition,  have  we,  that  is  opposed  to  the  principle 
of  the  present  economic  system?"  A.  "Yes." 

Q.  "Now,  in. the  absence  of  government  regulation  of  agree- 
ments between  competitors,  don't  you  see  the  peril  of  such 
agreements  to  the  public  safety?"  A.  "Oh,  sure." 

Q.  "Therefore,  until  we  get  government  regulation,  don't  you 
see  that  cooperation  among  competitors  must  be  suppressed  for 
the  safety  of  the  public?"  A.  "No."30 

Mr.  Gilbert  H.  Montague,  of  the  New  York  Bar,  and  counsel 
for  defendants  in  numerous  prosecutions  under  anti-trust  laws 
also  has  emphasized  the  danger  of  open  price  work  leading  to 
violations  of  the  law.  Speaking  of  open  price  associations  he  is 
quoted  as  saying:  "So  long  as  its  members  enter  into  no  agree- 
ment to  fix  prices  or  control  competition,  some  say  the  legality 
of  such  an  association  can  hardly  be  questioned.  Probably  this 
is  so,  but  the  question  will  remain,  how  far  removed  from  fixing 
prices  and  controlling  competition  are  the  results  of  such  an  asso- 
ciation? It  is  a  hair  line  that  divides  many  trade  associations 
from  admittedly  unlawful  combinations  in  restraint  of  trade,  and 
during  the  past  five  or  six  years  [this  statement  was  made  in 

"Ibid.,  p.  4624. 
id.t  p.  4629. 


32 1  ]  REGULATORY  ASPECTS  157 

1920]  there  has  been  an  increasing  laxity  on  the  part  of  many 
trade  association  officials  and  some  of  the  lawyers  who  have 
been  advising  regarding  the  proper  limits  of  trade  association 
activities.  Interchange  of  information,  while  always  dangerous 
wherever  prices  are  touched  upon,  would  seem  to  be  no  impos- 
sible feat  for  trade  associations  lawfully  to  accomplish  pro- 
vided always  that  they  observe  proper  safeguards  and 
precautions."31 

The  Forest  Service  of  the  Department  of  Agriculture,  in  its 
recent  report  on  the  lumber  industry,  concludes  that  the  open 
price  system  is  susceptible  of  abuse  at  the  hands  of  those  who 
would  divert  its  activities  into  improper  channels,  but  apparently 
there  is  no  thought  that  open  price  activity  must  inevitably  lead 
to  violations  of  the  law,  for,  altho  "the  assembling  and  distri- 
bution of  prices  received  by  different  members  of  these  associa- 
tions obviously  forms  a  possible  vehicle  or  medium  for  reaching 
more  or  less  definite  agreements  or  understandings  controlling 
the  prices  at  which  lumber  is  offered,  the  extent  to  which  they 
may  serve  as  such  a  medium  depends  upon  the  policy  followed 
by  the  particular  association  as  to  the  degree  of  publicity  given 
to  data  of  this  character,  upon  the  efforts  which  the  association 
may  make  to  induce  its  members  to  price  their  product  in  con- 
formity with  the  highest  rates  shown  by  the  current  reports, 
and  upon  the  extent  to  which  the  individual  lumber  producers 
or  selling  organizations  may  use  the  data  as  a  basis  for  price- 
control  agreements  or  informal  understandings.  Properly  em- 
ployed, particularly  with  a  large  degree  of  publicity,  such 
information  should  serve  to  stabilize  the  lumber  market  to  the 
advantage  of  both  producer  and  consumer."32 

In  the  face  of  the  statements  made  by  the  staunchest  sup- 
porters of  the  open  price  plan,  tantamount  to  an  admission  that 
the  interests  of  the  public  may  all  too  easily  be  jeopardized  by 
the  unrestrained  operation  of  such  a  system,  it  appears  that 
unless  open  price  associations  are  to  be  forbidden  their  existence, 

^Printers  Ink,  June  24,  1920,  p.  44. 

"Report  of  the  Forest  Service  of  the  U.  S.  Department  of  Agriculture  on  Timber 
Depletion,  Lumber  Prices,  Lumber  Exports,  and  Concentration  of  Timber  Ownership, 
June  i,  1920,  p.  68. 


158  OPEN  PRICE  ASSOCIATIONS  [j22 

some  means  of  regulation  or  control  must  be  sought,  looking 
toward  the  end  of  confining  the  activities  of  these  associations 
to  their  proper  channels.  Before  considering  the  remedial  meas- 
ures that  have  been  proposed,  it  may  be  well  to  give  particular 
notice  to  some  of  the  more  common  methods  employed  by  so- 
called  open  price  associations  in  their  endeavor  to  maintain  or 
enhance  prices  unlawfully. 

ILLEGAL  ACTIVITIES  AND  SUGGESTED  REMEDIES 
In  the  attempt  to  maintain  or  enhance  prices  by  means  of 
concerted  action,  reports  pertaining  particularly  to  production, 
shipments,  stocks,  costs,  and  prices  play  an  important  part,  for 
they  serve  to  illuminate  the  competitive  situation  in  such  a  way 
as  to  make  clear  the  course  of  action  that  should  be  adopted  in 
order  to  accomplish  the  object  in  view.  If  it  is  thought  desirable 
to  seek  to  achieve  the  end  in  view  indirectly  by  curtailing  pro- 
duction, a  particular  study  is  made  of  production,  order,  and 
stock  reports.  After  learning  the  conditions  of  supply  and  de- 
mand therefrom,  it  becomes  possible  to  determine* approximately 
the  percentage  of  curtailment  that  is  necessary  to  net  members 
the  maximum  profit.  In  the  case  of  the  Yellow  Pine  Association 
reports  of  this  character  were  made  the  basis  for  determining 
the  percentage  of  curtailment.  Action  to  curtail  was  decided  upon 
by  resolution.  Not  only  were  the  reports  used  for  the  purpose 
of  determining  the  percentage  of  curtailment  but  the  secretary 
used  them  after  the  resolution  to  curtail  had  been  passed  to 
determine  whether  members  were  complying  or  not.33 

The  use  of  cost  information  as  a  basis  for  enhancing  prices  in 
concert  is  often  resorted  to  because  the  circuitous  method  in- 
volved in  this  procedure  is  helpful  in  camouflaging  from  the 
gaze  of  the  public  the  true  character  of  the  activity  engaged  in. 
Incrimination  is  therefore  less  likely  to  result  than  if  some  more 
direct  means  were  used.  In  its  report  on  the  Causes  of  High 
Prices  of  Farm  Implements,  May  4,  1920,  the  Federal  Trade 
Commission  exposed  the  practise  in  vogue  among  the  associations 
of  implement  manufacturers  of  perverting  the  study  of  costs  to 
the  end  of  controlling  prices.  In  effect  what  was  done  was  to 

"State  vs.  Arkansas  Lumber  Co.,  et  al.,  169  S.  W.,  p.  160. 


323]  REGULATORY  ASPECTS  159 

have  cost  comparison  meetings  at  which  inflated  costs  were  com- 
pared with  the  tacit  understanding  that  prices  would  be  advanced 
the  same  percentage  shown  by  the  inflated  costs.  The  standard- 
ization of  implements,  and  the  equipment  that  was  furnished 
therewith,  was  pushed  with  energy  because  by  means  of  this 
achievement  not  only  prices  but  also  costs  could  be  made  com- 
parable. With  some  degree  of  standardization  accomplished,  cost 
committees  could  proceed  to  arrange  a  cost  schedule,  assigning 
arbitrary  inflated  costs  to  each  kind  of  implement  and  equip- 
ment, these  having  no  necessary  relation  to  actual  costs,  but  serv- 
ing as  a  basis  for  "recommendations"  to  members  that  the 
percentage  of  increase  in  costs  would  justify  a  like  advance  in 
prices.  There  appeared  to  be  no  direct  price  agreements;  no 
doubt  it  was  appreciated  that  there  lay  less  risk  of  detection  in 
controlling  prices  through  cost  education.  As  the  report  of  the 
Federal  Trade  Commission  states,  the  "connection  between  cost 
study  and  prices  of  members  was  one  of  subtle  group  suggestion 
and  unity  of  group  opinion  created  at  meetings  rather  than  one 
of  direct  price  agreement  or  other  formal  action  taken  to  influ- 
ence prices  of  members."34  Reports  of  prices  submitted  by 
members  were  used  to  check  up  their  activities  to  see  whether 
they  were  following  the  course  indicated  by  cost  study.  It  is 
apparent  that  the  cost  work  done  by  these  associations  was  not 
for  the  legitimate  purpose  of  educating  members  in  proper  meth- 
ods of  cost  keeping  so  as  to  make  it  possible  for  them  to  ascertain 
their  actual  costs,  but  the  purpose  clearly  was  to  encourage 
members  to  advance  prices  by  disseminating  among  them  studies 
of  inflated  costs.35 

There  remain  to  be  discussed  the  various  legal  abuses  attend- 
ing the  exchange  of  price  information.  The  exchange  of  price 
information  may  take  the  form  of  correspondence  and  conver- 
sations indicating  prices  to  be  charged  or  it  may  be  confined  to 
past  prices.  Most  so-called  open  price  associations  have  been 

^Report  of  the  Federal  Trade  Commission  on  the  Causes  of  High  Prices  of  Farm 
Implements,  May  4,  1920,  p.  427. 

"Accounts  of  the  cost  activities  of  the  farm  implement  manufacturers'  associa- 
tion may  be  found  on  pages  308,  309,  318,  414,  459,  460,  526,  584-587,  in  the 
Report  of  the  Federal  Trade  Commission  on  the  Causes  of  High  Prices  of  Farm  Im- 
plements,  May  4,  1920. 


l6o  OPEN  PRICE  ASSOCIATIONS  [324 

rather  circumspect  about  exchanging  information  of  future  prices, 
because  it  has  been  generally  believed  the  courts  would  look 
upon  activity  of  this  character  as  almost  prima  facie  evidence 
of  an  agreement  to  enhance  or  fix  prices.  However,  manufac- 
turers of  implements  have  been  exchanging  such  information 
among  themselves,  but  they  have  been  careful  not  to  involve 
their  associations  as  such,  in  this  activity.  The  following  letter 
of  F.  G.  Allen,  General  Manager  of  the  Moline  Plow  Works, 
to  W.  B.  Brinton,  President  of  the  Grand  Detour  Plow  Co., 
September  17,  1915,  is  illustrative  of  their  methods: 

"It  has  been  our  intention  since  the  Bloomington  Tractor 
demonstration  to  raise  the  price  of  our  tractor  plow.  We  made 
a  price  on  our  plow  which  seemed  to  us  to  net  a  legitimate  profit, 
and  find  that  we  are  below  the  other  people  who  are  making 
this  class  of  goods,  and  are  disposed  to  get  all  we  can  for  our 
goods,  even  tho  the  price  we  are  making  nets  us  an  adequate 
profit.  *****  \Ve  could  not  see  how  they  could  have  the 
courage  to  demand  so  large  a  profit,  but  we  assure  you  that  it  is 
our  intention  of  raising  prices  just  as  soon  as  we  can  get  to  it, 
and  that  we  think  will  be  within  a  few  days."36 

Prostitution  of  the  system  of  reporting  past  prices  to  the  end 
of  maintaining  or  enhancing  prices  is  most  commonly  achieved, 
first,  by  members,  in  their  individual  capacity  or  through  their 
association  leaders,  urging  each  other  to  strive  toward  the  accom- 
plishment of  these  objects;  second,  by  the  acts  of  association 
officers  in  disseminating  data  with  the  purpose  of  influencing 
members  to  direct  their  energies  toward  this  result. 

If  dissemination  of  price  data  is  decided  upon,  the  central 
office  may  choose  the  method  of  withholding  some  of  the  price 
information  received  from  members,  disseminating  only  that 
which  will  seem  to  indicate  that  going  prices  are  higher  than 
they  really  are,  or  the  method  may  be  adopted  of  issuing  to  the 
membership,  "suggested"  lists  of  prices  purporting  to  reflect  the 
character  of  going  prices,  but  in  reality  being  "boosting"  prices. 
Most  of  the  lumber  associations  have  resorted  to  both  methods. 
In  the  case  of  the  Yellow  Pine  Association,  the  secretary  assem- 
bled reports  of  all  prices  charged  by  members,  but  he  compiled 

*Ibid.,  p.  343. 


325]  REGULATORY  ASPECTS  l6l 

and  disseminated  only  those  which  reflected  the  highest  prices 
secured.  This  was  characterized  by  the  court  as  a  price  boosting 
device.37  The  American  Hardwood  Manufacturers'  Association 
also  adopted  the  same  scheme  but  very  soon  abandoned  it  on 
the  advise  of  counsel.38  Mr.  L.  C.  Boyle,  attorney  for  this  asso- 
ciation, upon  being  questioned  regarding  the  legality  of  the  prac- 
tise, replied  in  part: 

"It  is  my  judgment  that  it  is  unwise,  especially  at  this  time, 
to  circularize  this  form  of  market  report  of  high  sales  and  this 
because  the  conclusion  is  liable  to  be  reached  that  the  high  peaks 
are  designedly  given  for  the  purpose  of  forcing  up  the  general 
market."39 

It  has  been  suggested  earlier  in  this  chapter  that  in  some  quar- 
ters it  is  considered  illegal  to  interchange  lists  of  prices  actually 
being  quoted  by  members;  however  this  may  be,  the  illegality 
of  distributing  "suggested"  price  lists  is  unquestioned.  This 
device  has  been  very  commonly  used  in  the  lumber  industry  in 
an  effort  to  maintain  or  enhance  prices.  A  description  of  this 
practise  has  been  given  elsewhere.40 

By  the  interchange  of  information  pertaining  to  past  prices 
officers  and  members  alike  may  learn  to  what  extent  fellow-mem- 
bers are  adhering  to  such  arrangements,  understandings,  or  agree- 
ments as  may  be  in  force.  Being  possessed  of  this  knowledge, 
they  can  use  it  as  a  basis  for  bringing  pressure  to  bear  on  those 
who  seem  to  be  out  of  line  with  the  general  policy  of  the  asso- 
ciation. It  is  no  longer  customary  to  exact  hard  and  fast  agree- 
ments calling  for  penalties  in  the  event  of  violations  thereof; 
exhortations,  recommendations  and  resolutions  have  taken  their 
place.  Little  trace  of  compulsion  exists.  Unity  of  opinion  de- 
veloped at  meetings  and  by  means  of  correspondence  is  relied 
upon  to  carry  out  recommendations  made  and  resolutions  passed. 

To  illustrate:     In  an  investigation  of  the  book-paper  industry41 

|7See  account  given  in  ch.  7,  pp.  132-137. 

"Gadd,  F.  R.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II,  p. 
i  no. 

"Gadd,  F.  R.,  Exh.  5,  Record,  Vol.  II,  p. 1242. 

40Seech.  7,  pp.  129-131. 

nReport  of  the  Federal  Trade  Commission  on  the  Book  Paper  Industry,  pursuant 
to  Senate  Resolution  No.  122,  dated  August  15,  1917. 


1 62  OPEN  PRICE  ASSOCIATIONS  [326 

the  Federal  Trade  Commission  found  that,  while  ostensibly  the 
duties  of  the  secretary  of  the  statistical  bureau  to  which  most  of 
the  manufacturers  belonged  was  to  compile  and  distribute  cer- 
tain statistical  information,  in  reality  he  was  principally  engaged 
in  inciting  members  to  increase  their  prices,  this  being  done  by 
correspondence,  use  of  the  telephone  and  telegraph,  attending 
meetings,  and  holding  personal  conferences  with  members.42 

In  the  farm  implement  industry  members  often  took  it  upon 
themselves  to  give  notice  to  fellow-members  when  their  prices 
were  found  to  be  out  of  line  with  those  "recommended"  by  com- 
mittees. On  January  19,  1917,  C.  S.  Brantingham,  president  of 
Emerson-Brantingham  Co.,  wrote  to  one  of  his  sales  managers 
as  follows: 

"My  attention  has  been  called  by  a  competitor  to  the  fact  that 
our  recent  instructions  sent  out  to  branches  and  competitors 
show  sulky  plows  with  an  advance  of  fifteen  per  cent  instead  of 
ten  per  cent  as  was  arranged.  You  can  perhaps  imagine  my 
humiliation  in  getting  this  information  from  this  source,  inasmuch 
as  they  have  before  this  called  my  attention  to  errors  in  getting 
out  our  price  instructions."43 

The  issuance  of  "recommendations"  by  committees  of  members 
is  a  common  device  for  working  up  a  unified  sentiment  that  may 
be  counted  upon  to  crystallize  into  price  maintenance  or  price 
enhancement  activity.  This  practise  has  been  particularly  preva- 
lent in  the  lumber  industry.  For  instance,  in  its  report  before 
the  Fall  Meeting  (1914)  of  the  Michigan  Hardwood  Manufactur- 
ers' Association,  the  Market  Conditions  Committee  stated  in  part: 

"Your  committee  has  carefully  studied  all  recent  sales  as  re- 
ported to  your  secretary  and  the  attached  price  list  is  their  best 
judgment  as  to  present  prices.  We  want  you  to  study  more 
carefully  than  you  have  heretofore  statistics  as  to  stock  as  pre- 
pared by  your  secretary.  If  you  will  study  them  carefully,  we 
feel  sure  that  each  and  everyone  of  you  will  decide  to  curtail 
your  production  all  you  possibly  can  and  then  some."44 

albid.,  p.  17. 

"Report  of  the  Federal  Trade  Commission  on  the  Cause  of  High  Prices  of  Farm 
Implements,  May  4,  1920,  p.  312. 

"American  Lumberman,  Oct.  24,  1914,  p.  42. 


327]  REGULATORY  ASPECTS  165 

Not  only  have  recommendations  and  resolutions  been  used  for 
the  purpose  of  exerting  a  direct  effect  on  price  policy,  but  they 
have  been  used  for  the  purpose  of  affecting  the  price  policy  of 
members  indirectly  through  regulation  of  terms  of  payment.  It 
is  the  writer's  observation  that  nearly  every  trade  association 
in  the  textile  and  lumber  industries  advocates  standardization  of 
terms.  The  Eddy  associations  appear  not  to  countenance  this 
form  of  activity.  The  Babson  Statistical  Organization  once 
quoted  to  Mr.  Eddy  the  opinion  of  a  correspondent  that  terms 
of  payment  might  properly  be  put  upon  a  standard  basis  and 
asked  Mr.  Eddy  to  comment  on  this  point  of  view.  Mr.  Eddy 
replied  in  part: 

"It  seems  to  be  the  opinion  of  your  correspondent  that  while 
men  may  not  advance  prices  directly,  they  may  do  so  indirectly 
by  shortening  the  terms  of  payment,  etc.  It  is  needless  to  say 
that  all  such  attempts  to  control  the  freedom  of  the  individual 
to  run  his  business  as  he  pleases,  are  contrary,  not  only  to  the 
Sherman  Law,  but  to  the  laws  of  practically  every  state  in  the 
Union,  and  no  open  price  association  is  permitted  fto  do  anything 
of  the  kind,  except  with  the  cooperation  and  consent  of  customers 
obtained  in  advance  of  the  adoption  of  the  new  regulations."45 

The  foregoing  discussion,  it  is  thought,  makes  clear  without 
further  demonstration  that  open  price  associations,  or  any  other 
trade  association  for  that  matter,  can  all  too  easily  extend  their 
activities  to  the  point  where  they  become  a  detriment  to  the 
public  welfare.  The  Federal  Trade  Commission,  as  a  result  of 
its  investigations  of  numerous  trade  associations,  concludes  that 
"such  associations  are  frequently  tempted  to  extend  their  activi- 
ties beyond  the  useful  function  of.  collecting  trade  information 
regarding  supply  and  demand  and  prices,  and  to  engage  in  ac- 
tivities tending  to  artificially  control  prices  and  the  channels  of 
distribution."46  It  is  generally  recognized  that  the  present  law 
enforcement  machinery  is  inadequate  to  prevent  lawless  trade 
association  bodies  from  committing  abuses.  Proposals  for  reme- 
dies have  been  made,  but  they  are  general  and  superficial  in 

^Babson,  R.  W.,  Reports  on  Co  operation ,  C.  €.-9. 

Quotation  in  American  Lumberman,  Dec.  22,  1917,  from  Annual  Report  of  the 
Federal  Trade  Commission  for  the  Fiscal  Year  ended  June  JJ,  /9/7,  p.  3 1 . 


164  OPEN  PRICE  ASSOCIATIONS  [328 

%  I 

character — just  what  one  might  expect,  considering  the  newness 
of  the  problem.  The  chief  remedies  proposed  have  been  along 
the  lines  of  greater  publicity  and  more  governmental  supervision, 
A  combination  of  these  is  advocated  by  Mr.  Samuel  Untermyer, 
New  York  attorney: 

"The  real  way  of  preventing  injury  from  these  combinations," 
he  is  quoted  as  saying,  "is  to  subject  them  to  publicity,  and  all 
their  acts  to  rigid  governmental  supervision."47  His  plan  for 
controlling  their  activities  by  means  of  a  State  Trade  Commission 
is  the  most  concrete  proposal  for  a  remedy  yet  presented.  The 
chief  points  called  for  by  this  plan  may  be  briefly  summarized 
as  follows: 

1.  Creation  of  a  State  bi-partisan  Trade  Commission  of  six 
members. 

2.  Require  every  trade  organization  that  is  subject    to    the 
jurisdiction  of  the  State  to  file  with  the  commission  a  copy  of 
its  charter  and  by-laws,  with  the  names  of  its  officers,  directors, 
and  members. 

3.  Require  all  those  engaged  in  business  in  the  State  to  file 
a  report  with  the  commission  disclosing  all  trade  associations  of 
which  they  are  members,  and  any  "agreement,  arrangement  or 
understanding,  whether  written  or  oral"  with  anyone  else  engaged 
in  a  similar  line  of  business. 

4.  Prohibit  those  who  do  not  make  proper  disclosures  from 
remaining  affiliated  with  any  trade  associations. 

5.  Permit  members  to  participate    in    agreements,   arrange- 
ments or  understandings   intended  to  regulate  or   affect  or  fix 
prices,  or  output,  or  the  division  or  apportionment  of  territory, 
or  the  "reporting  or  exchange  of  cost  prices,  or  the  names  of  cus- 
tomers, or  reports  of  sales,  or  that  otherwise  deal  with  any  sub- 
ject that  tends  or  is  intended  to  regulate  or  restrain  competi- 
tion," provided  "such  agreement,  or  understanding,  whether  writ- 
ten or  oral,  shall  have  first  been  submitted  to  the  commission 
and  approved  by  it." 

6.  No  agreements,  arrangements,  or  understandings  are  to  be 
approved  by  the  commission   "unless   or  until   the  commission 
shall  have  approved  the  prices  at  which  commodities  are  to  be 

"The  World,  Sept.  15,  1920. 


329]  REGULATORY  ASPECTS  165 

sold  which  may  not  permit  of  a  profit  beyond  that  which  the 
commission  deems  to  be  reasonable,  nor  unless  all  the  terms 
and  details  have  been  exposed  to  the  commission  and  have  been 
approved  by  it." 

7.  Failure  on  the  part  of  members  who  are  parties  to  agree- 
ments, arrangements,  or  understandings  to  comply  with  the  pro- 
visions as  above  outlined  shall  make  them  guilty  of  a  misde- 
meanor and  upon  conviction  they  shall  be  punished,  etc. 

8.  The  Trade   Commission   shall   have  the   same  powers   of 
supervision  and  visitation,  etc.  "as  are  now  possessed  by  the  Fed- 
eral Trade  Commission  with  respect  to  interstate  corporations."48 

Mr.  E.  H.  Gaunt,  a  prominent  secretary  of  several  open  price 
associations,  favors  legislation  that  would  give  the  Federal  Trade 
Commission  power  to  permit  trade  associations  to  fix  the  price 
of  articles  sold  by  their  members,  this  price  to  be  a  fair  one 
based  on  accurate  costs.  "This  could  be  done,"  says  Mr.  Gaunt, 
"in  the  same  manner  as  the  Public  Service  Commissions  of 
various  States  control  the  price  of  gas,  electric  lights,  railroad 
rates,  and  street-car  fares  by  requiring  trade  associations  to  file 
with  the  Federal  Trade  Commission  their  proposed  changes  in 
prices."49 

The  policy  of  price  fixation  involved  in  both  Mr.  Untermyer's 
plan  and  that  of  Mr.  Gaunt  has  its  obvious  drawbacks.  To 
review  the  arguments  for  and  against  this  feature  would  extend 
the  scope  of  this  chapter  unduly.  Suffice  it  to  say,  that  many 
economists  of  eminence  as  well  as  prominent  men  in  other  pro- 
fessions hold  that  price  fixing  under  control  of  Government  com- 
missions is  not  desirable.  Perhaps  their  leading  argument  is  that 
such  a  course  has  the  effect  of  checking  technical  development, 
because  with  prices  fixed,  incentive  to  improve  processes  with  a 
view  of  increasing  business  by  lowering  prices  below  those  of 
competitors  is  diminished.50  A  study  of  war  experiences  with 

"For  a  more  detailed  account  of  the  Untermyer  Plan,  see  The  World,  New  York 
City,  Sept.  15,  1920. 

"Gaunt,  E.  H.,  Cooperative  Competition,  Providence,  R.  I.,  Jan.,  1918,  p.  32. 

*°Clark,  J.  B.,  "The  Possibility  of  Competition  in  Commerce  and  Industry," 
Annals  of  the  American  Academy  qf  Political  and  Social  Science,  Vol.  XLII,  No.  131, 
p.  63. 


1 66  OPEN  PRICE  ASSOCIATIONS  [330 

government  price  fixing  ought  to  contribute  a  vast  amount  of 
data  of  value  in  determining  the  advisability  of  adopting  a  plan 
involving  this  feature. 

The  Babson  Statistical  Organization  contends  that  most  vio- 
lations of  the  law  result  from  ignorance  on  the  part  of  business 
men  as  to  what  they  may  or  may  not  do  under  the  law;  this 
institution  accordingly  advocates  legislation  conferring  power 
upon  the  Federal  Trade  Commission  to  advise  business  men  in 
advance  whether  their  acts  will  be  legal  or  illegal.51  Others  have 
contended  that  the  Department  of  Justice  should  do  the  same 
thing. 

However,  Mr.  Colver,  a  member  of  the  Federal  Trade  Com- 
mission, has  asserted  that  it  is  not  possible  to  give  "rulings  in 
advance."  "To  begin  with,"  Mr.  Colver  is  quoted  as  saying, 
"no  man  can  say  what  his  conduct  is  going  to  be  for  the  next 
year,  the  next  week,  or  the  next  hour.  Even  if  he  did,  no  man 
knows  what  the  reflex  of  any  act  which  he  may  do  may  have 
upon  some  other  man.  He  looks  at  his  line  of  conduct  from  his 
own  point  of  view,  and  may  be  sincere  and  honest  in  believing 
it  to  be  a  good  thing;  but  he  does  not  and  can  not  know  how, 
in  the  complex  web  of  modern  commercial  relations,  his  conduct 
may  react  upon  another.  That  seems  to  bring  us  to  an  impasse. 
We  cannot  repeal  the  law;  the  lawyers  cannot  tell  you  what  it 
means,  and  the  Federal  Trade  Commission  cannot  prophesy. 
That  leaves  business  in  doubt,  and  doubt  breeds  suspicion  and 
fear  and  despair;  sometimes  it  breeds  defiance  of  law."02 

As  a  result  of  their  study  of  trade  associations  both  the  Federal 
Trade  Commission  and  the  Forest  Bureau  of  the  Department 
of  Agriculture  have  concluded  that  throwing  the  light  of  publicity 
on  the  activities  of  these  associations  offers  at  least  a  partial 
remedy  for  abuses  now  rampant.  The  Forest  Bureau  thinks 
that  the  activities  of  trade  associations  can  be  safeguarded  by 
the  cooperation  and  control  of  a  responsible  public  agency  like 
the  Federal  Trade  Commission,  and  by  systematic  publicity.53 

"Babson,  R.  W.,  Reports  on  Cooperation,  C.  C.-6. 
^Quoted  in  the  American  Lumberman,  June  19,  1920,  p.  44. 
MThis  report  refers  more  particularly  to  trade  associations  in  the  lumber  in- 
dustry.    See  Report  of  the  Forest  Service,  Some  Public  and  Economic  Aspects  of 


33  I  ]  REGULATORY  ASPECTS  167 

In  its  annual  report  for  the  year  1917,  the  Federal  Trade  Com- 
mission recommends  that  "all  trade  association  files  should  be 
made  public  records."54  "Such  publicity,"  declares  the  commis- 
sion, "would  extend  the  knowledge  of  all  producers  and  consum- 
ers regarding  conditions  of  supply  and  demand  and  help  to  pre- 
vent abnormal  trade  fluctuations  in  supply  and  prices.  It  would 
also  tend  to  curb  association  activities  of  an  objectionable 
character."55 

Neither  the  Forest  Service  Bureau  nor  the  Federal  Trade 
Commission  has  done  more  than  suggest  the  direction  in  which 
to  seek  a  remedy.  In  other  words  the  suggestion  is  not  accom- 
panied by  a  working  plan.  It  is  believed  that  a  study  of  the 
possible  means  for  putting  into  practise  this  plan  of  publicity 
will  reveal  some  very  knotty  problems  to  be  overcome  before 
the  plan  can  be  put  into  operation.  Our  study,  thus  far,  has 
revealed  that  membership  in  even  the  most  successful  associa- 
tions represents  only  a  moderate  proportion  of  the  persons  who 
are  eligible  to  membership.  The  inducement  to  membership  is, 
first,  that  the  association  is  a  benefit  to  the  industry  as  a  whole; 
second,  that  the  association  is,  in  a  direct  and  personal  way,  of 
benefit  to  the  individual  members.  It  goes  without  saying  that 
usually  the  second  inducement  must  be  strongly  present  in  order 
to  impress  prospective  members  sufficiently  to  cause  them  to 
join.  The  average  association  member  has  joined  because  of 
the  belief  that  by  so  doing  he  can  acquire  valuable  information 
that  would  otherwise  not  be  accessible  to  him.  But  suppose 
that  the  association  records  were,  as  contemplated  in  the  plan 
of  the  Federal  Trade  Commission,  made  freely  open  to  the 
public,  would  not  that  take  away  the  chief  incentive  that  mem- 
bers have  for  joining?  Why  pay  out  material  sums  to  cover  the 
expense  of  collecting  and  disseminating  these  facts  when  non- 
members  may  secure  them  without  contributing  anything?  It 
is  manifest  that  the  suggestion  of  the  Forest  Service  and  the 
Federal  Trade  Commission  would  have  to  be  accompanied  by 

the  Lumber  Industry,  June  24,  1917,  Gadd  Exh.  "A,"  Record,  American  Column 
&  Lumber  Co.  vs.  U.  S.,  Vol.  II,  p.  1198. 

"Quoted  in  American  Lumberman,  Dec.  22,  1917,  p.  26. 

"Ibid. 


l68  OPEN  PRICE  ASSOCIATIONS  [332 

provisions  that  would  make  their  plan  of  publicity  workable  and 
equitable. 

It  is  thought  that  trade  associations  honestly  endeavoring  to 
operate  along  legitimate  lines  would  find  it  distinctly  to  their 
advantage  to  take  the  initiative,  themselves,  in  admitting  the  pub- 
lic to  a  share  of  the  results  of  the  knowledge  which  they  are 
pooling.  The  statistics  published  might  be  of  such  a  character 
as  to  be  instructive  to  the  public  and  yet  not  disclose  information 
of  more  particular  value  to  members  themselves,  thereby  pre- 
serving, perhaps,  the  incentive  that  under  the  present  arrange- 
ment of  things  seems  to  be  needed  to  induce  membership.  The 
statistics  made  public  might  relate  to  the  industry  as  a  whole, 
showing,  for  instance,  the  character  and  amount  of  annual  out- 
put; the  percentage  of  fluctuation  in  amounts  on  hand  from  year 
to  year;  the  relation  of  prices  to  cost  of  production*  and  of  profit 
to  capital.  Sketches  of  any  developments  in  the  industry  such 
as  amalgamations,  new  issues  of  capital,  changes  in  directorates, 
et  cetera  could  also  very  well  be  made  public. 

A  policy  of  frankness,  such  as  a  step  of  this  kind  would  entail, 
might  help  trade  associations  to  break  down  the  prejudice,  sus- 
picion, and  distrust  to  which  the  public  in  a  large  degree  makes 
them  the  object,  and  which  is  reflected  to  their  disadvantage  in 
hostile  government  action.  With  adequate  data  at  their  disposal, 
the  public  could  in  a  large  measure  arrive  at  their  own  conclu- 
sions regarding  the  reasonableness  of  prices,  wages,  profits,  et 
cetera.  Many  unfounded  and  exaggerated  suspicions  would  be 
dispelled  thereby,  and  many  allegations  of  profiteering  or  exploit- 
ing now  blindly  hurled  at  the  undeserving  as  well  as  the  deserv- 
ing would  fall  of  their  own  weight.  The  educating  effect  on  the 
consumer,  investor,  legislator,  and  business  man  would  itself  be 
helpful  to  the  trade  associations  themselves  as  well  as  to  the 
recipients  of  this  education;  in  the  course  of  time  these  various 
groups  would  come  to  understand  the  possibilities  involved  in 
helpful  cooperation.66 

Trade  associations  engaged  in  illegitimate  trade  practises 
that  now  find  it  possible  to  thrive  unmolested  because  of  the 

MThe  gist  of  this  line  of  argument  is  taken  from  an  article,  entitled  "Trade  Com- 
binations," by  C.  Ernest  Fayle,  appearing  in  the  Edinburgh  Review,  July,  1919. 


333]  REGULATORY  ASPECTS  169 

prevailing  state  of  public  ignorance  of  their  operations,  would 
undoubtedly  be  obliged  to  reform  were  the  glaring  searchlight  of 
publicity  turned  upon  them. 

The  rise  of  trade  associations  may  itself  be  taken  as  evidence 
that  the  policy  of  secrecy  in  business  is  being  rapidly  exploded. 
Open  price  associations  go  further  in  sanctioning  publicity  than 
do  other  trade  associations,  but  even  they  show  a  disposition  to 
confine  the  information  at  their  disposal  to  their  own  members. 
It  is  believed  that  in  the  future  the  public  will  insist  on  sharing 
the  benefit  of  the  knowledge  that  is  being  pooled  by  these  asso- 
ciations. Certainly  in  its  capacity  of  purchaser,  the  public  will 
be  at  a  relative  disadvantage  unless  it  possesses  knowledge  of 
market  conditions  equivalent  to  that  possessed  by  members  in 
their  capacity  of  sellers.  However,  if  the  public  is  to  insist  on 
having  the  benefit  of  this  accumulated  knowledge  it  must  not 
demur  at  sharing  the  expense  which  is  necessarily  associated 
with  gathering,  compiling,  and  disseminating  information. 

ATTITUDE  OF  THE  FEDERAL  GOVERNMENT 
It  is  the  writer's  conviction  that  trade  associations  would  be 
less,  secretive  with  reference  to  their  activities  if  they  had  some 
assurance  that  by  doing  things  publicly  they  would  not  be  laying 
themselves  open  to  attacks  by  the  Government.  In  other  words 
many  associations  have  sought  cover  because  of  the  hostility 
shown  them  in  the  past.  The  misdeeds  of  some  trade  associa- 
tions have  resulted  in  enveloping  all,  good  or  bad,  in  a  storm 
of  public  and  governmental  disapproval. 

The  conception  has  prevailed  in  governmental  circles  that  the 
only  true  competition  is  competition  carried  on  in  secret  and  in 
ignorance.  Thus  trade  associations  have  been  shown  hostility 
because  they  have  tried  to  make  their  members  intelligent  com- 
petitors. The  point  of  view  that  business  men  should  compete 
in  ignorance  is  well  illustrated  by  the  tenor  of  the  questions  put 
to  Mr.  Wm.  J.  Mathews,  counsel  for  several  open  price  associa- 
tions, by  Mr.  Samuel  Untermyer  who  was  appointed  to  conduct 
the  hearings  before  the  New  York  Joint  Legislative  Committee 
oi>  Housing: 

Q.     "Now  we  are  talking  about  competition  and  you  are  talk- 


I7O  OPEN  PRICE  ASSOCIATIONS  [334 

ing  about  cooperation,  which  is  to  my  mind  the  antithesis  of 
competition.  Now  in  an  economic  system  such  as  ours  in  this 
country,  based  upon  competition,  you  understand?"  A.  "Yes." 

Q.  "Don't  you  see  how  absolutely  incongruous  is  the  idea 
that  every  competitor  should  know  every  other  competitor's 
business?"  A.  "Absolutely  not."67 

However,  there  is  evidence  on  every  hand  that  the  attitude  of 
governmental  bodies  toward  cooperative  activities  is  changing. 

In  the  case  of  the  United  States  vs.  United  States  Steel  Corpo- 
ration, the  Department  of  Justice  made  the  following  concession 
in  its  original  petition:  "It  is  not  here  alleged  that  merely 
assembling  and  mutually  exchanging  information  and  declaration 
of  purpose  amount  to  an  agreement  or  a  combination  in  restraint 
of  trade."68 

A  letter  written  by  President  Wilson  to  Edward  N.  Hurley, 
then  vice-chairman  of  the  Federal  Trade  Commission,  dated 
May  12,  1916,  has  been  widely  quoted  as  indicating  the  attitude 
of  the  administration  under  the  Wilson  regime.  In  this  letter 
Mr.  Wilson  said  in  part: 

"Your  suggestion,  that  trade  associations,  associations  of  retail 
and  wholesale  merchants,  commercial  clubs,  boards  of  trade, 
manufacturers'  associations,  credit  associations,  and  other  similar 
organizations,  should  be  encouraged  in  every  feasible  way  by 
the  Government  seems  to  be  a  very  wise  one.  To  furnish  them 
with  data  and  comprehensive  information  in  order  that  they  may 
more  easily  accomplish  the  result  that  they  are  organized  for  is 
a  proper  and  useful  Government  function.  These  associations, 
when  organized  for  the  purpose  of  improving  conditions  in  their 
particular  industry,  such  as  unifying  cost  accounting  and  book- 
keeping methods,  should  meet  with  the  approval  of  every  man 
interested  in  the  business  progress  of  the  country."69 

Significant  of  the  trend  of  opinion  is  the  passage  of  the  Webb- 
Pomerene  Law  permitting  combinations  of  American  business 

"Hearings  before  the  New  York  Legislative  Committee  on  Housing,  Dec.  29, 
1920,  Record,  p.  4638.  For  an  account  of  the  writer's  conception  of  true  com- 
petition, see  ch.  3,  pp.  44-47. 

S8U.  S.  vs.  U.  S.  Steel  Corporation,  223  Fed.,  155. 

S9Quoted  by  E.  N.  Hurley  in  his  article  entitled,  "Present  Attitude  of  theGov- 


335]  REGULATORY  ASPECTS  171 

men  in  promoting  and  preserving  foreign  trade.  This  bill  received 
the  active  support  of  the  Federal  Trade  Commission  and  President 
Wilson. 

Mr.  Robert  E.  Belt,  then  Chief  Accountant  for  the  Federal 
Trade  Commission,  in  an  address  before  an  association  of  hard- 
wood manufacturers,  January  30,  1917,  endorsed  the  work  done 
by  open  price  associations  in  the  following  language:  "My  ob- 
servation has  been  that  the  associations  that  are  accomplishing 
most  in  a  legitimate  way,  for  the  Individual  members  and  for  the 
industry,  are  those  associations  where  the  members  meet  peri- 
odically to  exchange  information,  compare  experiences,  discuss 
trade  problems,  and  profit  by  the  interchange  of  ideas.  It  ap- 
pears to  me  that  cooperative  work  of  this  character  is  essential 
to  the  economic  and  financial  strength  of  our  industries,  and  to 
the  full  development  of  our  domestic  and  foreign  trade."60 

Those  who  are  identified  with  the  work  of  open  price  associa- 
tions appear  to  view  favorably  the  turn  taken  in  the  point  of 
view  of  those  in  control  of  governmental  affairs.  Mr.  Clark 
McKercher,  former  assistant  to  the  United  States  Attorney  Gen- 
eral, now  counsel  for  a  number  of  open  price  associations,  is 
quoted  as  saying  early  in  1917:  "General  business  believes  that 
the  Government  is  now  on  the  right  track.  ******  Gov- 
ernment espionage,  once  feared  as  a  counter  irritant  to  all  indus- 
trial disturbances,  has  under  the  intelligent  guidance  of  the 
Federal  Trade  Commission  turned  out  to  be  an  admirable  cor- 
rective and  a  beneficial  stimulant.  With  a  restricted  jurisdiction, 
the  Commission  has  been  decidedly  encouraging  in  its  helpful 
activities.  It  is  making  good  on  the  promise  of  Commissioner 
Hurley,  who,  after  speaking  of  the  assistance  rendered  to  busi- 
ness by  the  Interstate  Commerce  Commission,  Department  of 
Agriculture,  and  the  Federal  Reserve  Board,  said,  'To  do  for 
general  business  that  which  these  other  agencies  do  for  groups 

eminent  towards  Trade  Associations,"  Heating  and  Ventilating  Mag.,  Sept.  1916, 
Vol.  XIII,  pp.  46-47. 

'"Belt,  R.  E.,  Improved  Accounting  Methods  and  Business  Practises.  An  ad- 
dress before  the  Hardwood  Manufacturers'  Association  of  the  United  States,  Jan. 
30,  1917,  American  Lumberman,  Feb.  3,  1917. 


172  OPEN  PRICE  ASSOCIATIONS  [336 

to  which  I  have  referred  was  the  thought  behind  the  creation  of 
the  Federal  Trade  Commission.'  "61 

The  recent  action  of  the  Federal  Reserve  Board,  acting  through 
the  Federal  Reserve  Banks,  in  developing  a  system  under  which 
trade  data  are  to  be  collected  and  distributed  much  in  the  same 
manner  as  is  done  by  the  typical  open  price  association  is  highly 
significant  because  it  amounts  to  an  admission  on  the  part  of  an 
important  branch  of  the  Government  that  the  methods  employed 
by  these  associations  have  a  distinct  value.  The  fact  that  the 
Federal  Trade  Commission  some  months  ago  worked  out  a  plan 
almost  identical  to  that  of  the  Federal  Reserve  Board  is  of  added 
significance.  The  plan  of  the  Commission  had  to  be  abandoned 
because  its  facilities  were  unequal  to  the  task. 

The  plan  promulgated  by  the  Federal  Reserve  Board  is  de- 
scribed in  a  general  way  in  a  pamphlet  entitled  How  is  Business, 
published  earily  in  1920  by  the  Federal  Reserve  Bank  of  Phila- 
delphia. In  brief,  the  purpose  is  to  secure  from  representative 
firms  in  each  of  the  more  important  lines  of  industry,  certain 
figures  relating  to  their  production,  stocks,  unfilled  orders,  et 
cetera.  The  same  firms  will  be  asked  to  make  these  reports  at 
monthly  intervals.  The  figures  collected  are  then  to  be  compiled 
so  as  to  show  certain  facts  for  the  industry  as  a  whole,  such  as 
the  increase  or  decrease  in  production  "from  a  known  standard;" 
the  increase  or  decrease  in  unfilled  orders,  and  the  increase  or 
decrease  in  raw  materials  and  finished  product  on  hand.  The 
work  of  assembling  and  disseminating  such  figures  as  these  has 
already  been  begun  in  some  fields,  notably  in  the  textile  and 
wholesale  grocery  lines.62 

Indorsement  of  open  price  activity,  at  least  as  applied  to  the 
lumber  industry,  has  also  been  given  by  the  Forest  Service  Bureau 
of  the  Department  of  Agriculture.  In  its  report  on  the  lumber 
industry  issued  in  1917,  it  specifically  recommended  that  asso- 
ciations furnish  lumber  manufacturers  with  the  current  trade 
statistics  necessary  to  keep  them  informed  on  the  condition  of 
the  market,  in  order  that  they  might  "adapt  their  own  business 
to  its  changing  requirements,"  these  statistics  to  include  data 

nNew  York  Journal  of  Commerce,,  Jan.  3,  1917. 

^Federal  Reserve  Bank  of  Philadelphia,  How  is  Business?,  pp.  i,  4,  6. 


33?1  REGULATORY  ASPECTS  173 

on  the  volume  of  orders,  shipments,  lumber  stocks  on  hand,  and 
prices.  The  report  concludes  that  "with  adequate  safeguards  the 
public  should  encourage  such  forms  of  cooperation  among  manu- 
facturers as  a  necessary  means  of  making  the  lumber  industry 
more  efficient."63 

That  the  various  branches  of  the  Government  are  veering  into 
the  position  of  recognizing  the  value  of  open  price  activity,  when 
it  is  not  perverted  to  the  end  of  maintaining  or  enhancing  prices, 
seems  to  be  amply  demonstrated  in  what  has  gone  before.  No 
doubt  the  war  did  much  to  bring  about  this  revolutionary  change 
in  the  attitude  of  the  Government  toward  trade  associations, 
altho  it  is  probably  true  that  it  would  have  come  about  had 
there  been  no  war,  for  signs  of  such  a  change  were  clearly  visi- 
ble prior  to  that  event.  Nevertheless,  had  not  the  war  intervened, 
the  change  would  undoubtedly  have  come  about  more  slowly 
than  it  did.  During  the  war  the  Government  fell  into  the 
habit  of  depending  upon  trade  associations  for  aid  in  lining 
up  the  various  industries  so  as  to  achieve  maximum  efficiency 
of  production.  In  fact,  the  Government,  during  the  last  few 
months  of  the  war,  told  firms  and  individuals  who  were  not  then 
members  of  trade  associations,  that  if  they  wished  to  do  busi- 
ness with  the  Government  they  would  be  obliged  to  get  into 
organizations  and  do  business  as  organizations  and  not  as  indi- 
viduals.64 It  may  confidently  be  predicted  that  governmental 
recognition  of  the  necessity  for  industrial  organization  will  not 
lapse  even  tho  the  pressing  circumstances  which  were  instru- 
mental in  calling  it  into  being  are  no  longer  existent.  The  Gov-. 
ernment  has  taken  a  step  which  it  is  not  likely  to  retrace. 


"Report  of  the  Forest  Service  Bureau,  Some  Public  and  Economic  Aspects  oj  the 
Lumber  Industry •,  Jan.  24,  1917,  pp.  1197-98. 

"Kellogg,  R.  S.,  The  Legitimate  Functions  of  Trade  Organizations;  an  address 
delivered  before  the  Business  Secretaries  Forum,  Chicago,  Illinois,  Jan.  25,  1918, 
p.  7- 


CHAPTER    IX 


To  attempt  to  ascertain  with  any  degree  of  accuracy  the  effect 
on  prices  exerted  by  open  price  activity  is  indeed  a  most  difficult 
task.  The  youthful  character  of  the  open  price  association 
taken  together  with  the  numerous  and  confusing  influences  at 
work,  particularly  during  the  last  few  years,  makes  the  value 
of  a  study  of  this  character  problematic.  Moreover,  the  data 
upon  which  to  base  such  a  study  are  difficult  of  access.  Those 
who  are  in  control  of  open  price  associations  hesitate  to  permit 
outsiders  to  avail  themselves  of  the  information  that  has  been 
accumulated — especially  of  the  kind  bearing  on  prices.  Perhaps 
their  attitude  may  be  chiefly  ascribed  to  a  fear  that  such  infor- 
mation, were  it  released,  might  come  into  the  hands  of  those 
who  would  attempt  to  use  it  to  jeopardize  the  interests  of  open 
price  associations,  or  perhaps  they  are  actuated  by  the  feeling 
that  as  custodians  of  the  information  which  members  have  im- 
parted to  them  they  are  not  privileged  to  make  common  property 
of  it,  and  that  to  do  so  would  be  to  violate  the  confidence  mem- 
bers have  reposed  in  them. 

Altho  the  inaccessibility  of  competent  price  data  makes  it 
futile  to  attempt  to  formulate  any  conclusions  based  on  statistics 
respecting  the  effect  of  open  price  activity  on  prices,  it  is  believed 
that  some  progress  looking  toward  an  ultimate  solution  of  this 
knotty  problem  can  be  made  by  pointing  out,  first,  the  probable 
method  of  approach  in  the  solution  of  such  a  problem;  second, 
influences  at  work  tending  to  vitiate  the  accuracy  of  results  de- 
rived from  a  study  of  this  character;  third,  influences  tending 
to  confine  prices  to  channels  in  which  they  would  be  expected 
to  run  if  their  course  were  not  upset  by  open  price  operations; 

174 


339J  INFLUENCE  ON  PRICES  175 

fourth,  influences  tending  to  swerve  prices  away  from  the  course 
that  they  would  be  likely  to  take  in  the  absence  of  open  price 
activity;  fifth,  the  probable  effect  on  prices  of  the  interaction  of 
these  conflicting  influences. 

METHOD  OF  ASCERTAINING  INFLUENCE  ON  PRICES 
It  is  believed  that  the  best  method  to  pursue  in  determining 
the  influence  of  open  price  activity  on  prices  is  to  compare  price 
data  of  two  kinds.  The  first  kind  involves  a  comparison  of  prices 
obtained  by  members  of  open  price  associations  with  those  re- 
ceived by  non-members.  The  object  of  this  investigation  is  to 
determine,  first,  if  all  members  are  getting  the  same  prices  as 
non-members  or  higher  or  lower  prices;  second,  if  periodic  fluc- 
tuations in  members'  prices  are  more  pronounced  or  less  so  than 
those  of  non-members.  The  second  kind  involves  a  comparison 
of  the  prices  obtained  by  members  themselves.  The  object  of 
this  investigation  is  to  determine  to  what  extent,  if  at  all,  prices 
show  a  tendency  to  become  uniform. 

The  commodities  involved  must,  of  course,  be  of  like  kind. 
Likewise  the  investigation  should  cover  a  period  of  several  years. 
It  should  also  be  established  that  the  non-members  whose  prices 
are  used  have  had  no  access  to  the  information  pooled  by 
members. 

Information  bearing  on  prices  received  by  members  of  open 
price  associations  can  most  conveniently  be  obtained  from  the 
compiled  reports  of  sales  issued  at  periodic  intervals  to  the  mem- 
bership by  the  central  office  of  each  of  these  associations.  Most 
of  these  compiled  sales  reports  not  only  show  the  individual 
membership  reports  of  prices,  but  also  give  the  average  of  all 
prices  reported  for  the  period.  It  is  thought  that  sufficiently 
accurate  results  can  be  secured  by  using  these  reports  of  aver- 
ages. To  get  accurate  price  data  pertaining  to  competitors  who 
are  not  members  of  open  price  associations  in  their  industry,  it 
would  seem  necessary  to  go  to  the  records  of  non-members  them- 
selves. No  doubt  it  is  very  difficult  to  obtain  adequate  data 
from  a  sufficient  number  of  competitors  to  make  these  data 
representative.  Probably  very  few  non-members  can  be  found 
who  have  preserved  records  of  sales  for  several  consecutive  years. 


176  OPEN  PRICE  ASSOCIATIONS  [340 

The  question  might  be  raised  why  prices  given  in  trade  jour- 
nals, or  in  the  reports  of  the  Bureau  of  Labor  Statistics  or  other 
recognized  sources  of  price  information  may  not  properly  be  used 
to  represent  the  prices  obtained  by  non-members.  The  diffi- 
culty with  this  proposal  is  that  these  prices  are  a  composite  of 
prices  received  in  the  industry  as  a  whole;  for  this  reason  they 
are  representative  of  neither  the  group  of  non-members  nor  the 
group  of  members  but  of  both  groups.  If  the  industry  were 
wholly  within  the  control  of  an  open  price  association,  figures 
taken  from  these  sources  might  be  of  some  value  when  compared 
with  figures  covering  a  period  prior  to  the  existence  of  the  asso- 
ciation, provided  that  proper  allowance  could  be  made  for  such 
changes  in  the  economic  situation  as  might  have  occurred  in  the 
course  of  the  transition  from  one  period  to  the  other. 

Altho  it  appears  exceedingly  difficult  to  obtain  competent 
data  at  the  present  time,  even  if  no  other  sources  of  information 
are  made  available,  no  doubt  future  litigation  involving  open 
price  associations,  or  investigations  made  of  them  by  the  Federal 
Trade  Commission,  will  reveal  much  information  of  an  illumi- 
nating character  bearing  on  prices  received  by  non-members 
as  well  as  members. 

The  record  of  the  United  States  vs.  The  American  Column 
and  Lumber  Co.  et  al.  offers  the  first  considerable  contribution 
of  price  data  available  for  study.  In  this  case  the  defendants 
introduced  several  charts  indicating  prices  received  during  1919 
for  different  kinds  of  hardwood  by  competitors  who  were  not 
members  of  the  "Open  Competition  Plan".  This  open  price  plan 
was  that  in  use  by  the  American  Hardwood  Manufacturers' 
Association.1  In  addition  the  defendants  introduced  copies  of  all 
the  sales  reports  compiled  by  the  manager  of  statistics  and  dis- 
seminated among  the  membership  during  the  year  1919.  This 
was  done  in  order  that  comparisons  might  be  made  between  prices 
charged  by  members  and  prices  charged  by  non-members,  the 
contention  of  the  defendants  being  that  such  comparison  would 
reveal  that  members  were  neither  maintaining  fixed  prices  nor 
were  they  obtaining  prices  any  higher  than  those  received  by 
outside  competitors.  The  Transcript  of  Record,  which  was  all  of 

'See  account  of  plan  in  ch.  7,  pp.  137-148. 


341  ]  INFLUENCE  ON  PRICES  177 

the  record  that  was  accessible  to  the  writer,  contains  charts  giv- 
ing the  prices  that  were  received  by  certain  non-members  for 
the  entire  year  of  I9I9,2  but  the  reports  of  sales,  showing  prices 
received  by  members  during  1919,  are  not  given  in  their  entirety 
in  the  Transcript  of  Record.3  The  Manager  of  Statistics,  how- 
ever, placed  at  the  writer's  disposal  all  of  the  sales  reports  issued 
during  1919.  It  was  found  possible  to  extract  price  data  from 
these  reports  of  sales  which  were  comparable  to  the  data  con- 
tained in  one  of  the  charts  showing  prices  received  by  a  non- 
member.  Prices  received  by  non-members  as  shown  in  the 
other  charts  could  not  be  made  comparable  with  prices  contained 
in  the  reports  of  members'  sales  because  kinds,  grades,  or  thick- 
nesses of  lumber  did  not  correspond.  In  the  instance  where  it 
was  found  possible  to  make  a  comparison,  the  graphs  which  the 
writer  plotted  to  show  the  trend  of  prices  in  each  case  disclosed 
that  the  average  prices  received  by  members  of  the  association 
for  the  year  1919  were  no  higher  than  those  received  by  this 
particular  non-member.4 

The  writer  also  prepared  a  chart  with  four  graphs,  three  of 
them  showing  the  average  weekly  prices  received  by  three  lead- 
ing members  of  the  association,  the  fourth  showing  the  average 
weekly  prices  of  all  members.  The  period  covered  was  from 
July  26th,  1919,  to  December  27th,  of  the  same  year.  An  exami- 
nation of  this  chart  reveals  at  a  glance  that  the  prices  received 
by  each  of  these  manufacturers  varied  widely  from  time  to  time; 
nor  can  one  trace  any  existing  relationship  between  the  prices 
received  by  the  manufacturers  and  the  average  prices  received 
by  all  the  members.8  Assuming  that  the  trend  of  these  prices 
may  be  considered  typical  of  that  of  all  the  other  members,  the 
inference  to  be  drawn  therefrom  is  that  open  price  activity 
among  members  of  the  Hardwood  Manufacturers'  Association  did 

*  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  Ill,  Krebs  Exh.  No.  I, 
p.  1509;  May,  Exh.  No.  I,  p.  1513;  Wertz  Exh.  No.  i,  p.  1613;  Thomas  Exh.  No. 
I,  p.  1398. 

'Reports  of  sales  are  shown  for  the  month  of  January,  1920,  Record,  Vol.  I, 
Exh.  "A,"  p.  33. 

'See  chart  No.  I,  in  this  chapter,  p.  178. 

"See  chart  No.  2,  in  this  chapter,  p.  179. 


[178] 


S3SS5«*«rS7^«  *"••••••""""••*••••••••" 


:::::::::::::::::::::::::::::::.:  :::  ::::::::::s::s 
::::::::::  :::::::::? 


: :  ;:::::::::;.::::::::?::? 


i:::::::::::::::::::::::::::::::::::::::: 
i:::::::::::'  :::::::5:i:: 


[179] 


ISO  OPEN  PRICE  ASSOCIATIONS  [344 

not  lead  to  uniformity  in  price  policy,  at  least  during  the  year  1919. 

That  the  statistical  conclusions  indicated  on  the  charts  drawn 
by  the  writer,  altho  inconclusive  in  themselves  becaused  based 
on  inadequate  data,  truly  depict  the  character  of  the  prices  re- 
ceived by  members  during  1919  is  attested  to  by  several  pur- 
chasers who  stated  that  the  prices  paid  by  them  to  different 
members  were  neither  uniform  nor  were  they  any  higher  than 
those  paid  to  non-members.6 

In  this  connection  it  must  be  pointed  out,  however,  that  the 
price  data  taken  from  the  association  reports  of  sales  cannot 
properly  be  used  as  a  basis  for  determining  the  effect  of  open 
price  activity  on  prices,  because,  as  indicated  elsewhere,7  only 
to  a  very  small  extent  did  members  use  the  sales  reports 
issued  in  1919  as  a  guide  to  the  trend  of  the  market,  for  by  the 
time  that  they  were  received  from  the  manager  of  statistics  (a 
week  or  two  subsequent  to  the  time  when  the  sales  listed  were 
made)  current  market  prices  had  advanced  so  far  ahead  of  those 
listed  on  sales  reports,  that  the  latter,  if  they  had  been  taken 
as  a  guide  would  in  a  great  many  instances  have  resulted  in 
sales  at  prices  below  the  current  rate.  Only  the  class  of  small 
manufacturers  seem  to  have  derived  any  benefit  from  studying 
the  sales  reports.  Even  tho  the  prices  listed  on  the  sales 
reports  were  below  the  best  market  prices  then  prevailing,  yet 
they  were  higher,  apparently,  than  the  ones  these  small  manu- 
facturers had  been  accustomed  to  receive  prior  to  their  entry 
into  the  association.  Of  the  numerous  letters  received  by  the 
manager  of  statistics  in  commendation  of  the  Open  Competition 
Plan,  all  of  those  which  pointed  to  the  fact  that  the  plan  had 
enabled  members  to  get  better  prices,  were  from  small  manufac- 
turers.8 An  unprecedented  demand,  accompanied  by  a  shortage 
of  supply,  resulted  in  such  a  rapid  advance  in  prices  that  the 
sales  reporting  system  proved  unequal  to  the  task  of  keeping 
members  properly  apprised  of  the  latest  price  developments.  It 
is  obvious,  therefore,  that  the  results  obtained  by  the  writer 

•See  Record,  Vol.  II,  pp.  1372,  1367,  1394,  1395;  Vol.  Ill,  p.  1563.  See  Chart 
No.  3,  in  this  chapter,  showing  variation  in  prices  received  by  members  during 
1919.  p.  181. 

7Ch.  6,  pp.  124-125. 

*Boyle,  L.  C.,  Argument  before  the  Supreme  Court,  p.  68. 


GADD  EXHIBIT  "J" 


APPENDIX  A 


speciet« 


'      A-<AnADll  J 

lation  which  discloses  the  wide  variation  of  prices  received  by  the  members  for  the  same  i 
grade  and  thickness,  collated  from  the  sales  reports  and  used  in  charts  marked  exhibits. 

One  inch  No   i  Common  (and  selects  where  the  Grade  is  combined)  Hardwood 
Lumber 

F.  O.  B.  CAIRO,  ILLINOIS  F.  O.  B.  CINCINNATI,  OHIO 


Date  of 
Report 
1919 

Plain  Red 
Gum 

Sap 
Gum 

Plain  White 
Oak 

Cotton- 
wood 

Poplar 

Chestnut 

High 

Low 

High 

Low 

High 

Low 

High 

Low 

High 

Low 

High 

Low 

Jan.      3  

35.00 

35.00 

57-5O 

53.00 

40.00 

39-75 

10  

38.50 

37.50 

30.75 

30.75 

57.00 

57-oo 

55.00 

SS.oo 

15  

51.25 

46.75 

57-75 

52.50 

25  

33-75 

25.50 

42.50 

38.25 

36.00 

32.00 

57.00 

50.00 

47.50 

47.50 

Feb.      3  

36.50 

27-75 

31-00 

27.50 

42.25 

j      J 
36-25 

j    *~ 
36.50 

35.00 

i. 
58.00 

47-75 

45-00 

35-50 

8  

38.25 

31-50 

31-75 

28.00 

45-5" 

38.50 

40.50 

40.50 

57.00 

54-50 

46.00 

40.00 

IS  

41.25 

33-00 

31-75 

27.50 

43-25 

38.  2C 

35-75 

34-25 

SS-25 

44-75 

42-75 

38.25 

22  

40.00 

33-75 

33.00 

27.75 

46.25 

38.00 

36.50 

24.50 

53-00 

38.75 

46.00 

3S-2S 

Mar.     i  

40.00 

33-25 

36.00 

26.75 

46.25 

39-75 

38.75 

32-75 

64.00 

39-50 

45-75 

30.00 

8  

40.50 

32-50 

30.75 

26.75 

45-50 

36.75 

35-00 

34-00 

58.00 

46.00 

43.00 

38.25 

IS  

38.50 

33-00 

30.50 

27.50 

46.25 

39.oo 

37-25 

34-00 

56.25 

48.00 

46.50 

38.00 

22  

49.25 

33-50 

37.75 

27.50 

41-75 

37-  •'S 

36.7S 

34-75 

61  .00 

42.25 

40.00 

37-  7S 

29  

43-25 

32.00 

34-50 

26.25 

49-75 

38-25 

37.25 

33.50 

56.00 

43-00 

45-50 

38.25 

Apr.      5  

41-75 

27.25 

32.00 

28.00 

44-00 

38.25 

36.50 

33-75 

55-  SO 

43-00 

46.00 

38.25 

12  

41.00 

33-75 

30.75 

27.50 

42-25 

38.75 

37-00 

33.00 

55-00 

45-25 

51.00 

38.50 

19  

39-75 

33-75 

32-75 

28.00 

46.75 

34-25 

37-25 

35.00 

59.00 

49-75 

46.75 

38.50 

26  

40.00 

29.50 

37-75 

26.75 

48.75 

36.50 

37-00 

33-00 

56.50 

48.00 

45-00 

34.00 

May     3  

41-75 

33-00 

32-25 

26.75 

47  oo 

36.25 

36.75 

35-50 

57.00 

51.00 

43-00 

38.50 

10  

43-25 

33-50 

33-50 

27.25 

48.75 

39-50 

37-75 

33.25 

64.00 

48.7S 

46.50 

38.25 

17  

43-75 

35-25 

37-SO 

27.25 

50.75 

36.25 

37-50 

35-SO 

61.00 

47.00 

51.00 

38.50 

24  

44-2? 

35-7! 

34-00 

26.75 

48.50 

39.25 

40.25 

35-00 

61  .00 

46.50 

44-00 

38.25 

31  

47-00 

35-00 

36.00 

29.00 

51-50 

38.25 

39-00 

33-75 

56.00 

45-50 

46.50 

38.50 

Tune      7  

49-75 

38-25 

16.50 

28.50 

S3-50 

45-50 

43  -SO 

35.25 

57-50 

50.25 

46.00 

42.00 

14  

52-7S 

37-00 

40.25 

29.75 

60.00 

38.00 

42.00 

36.50 

61.00 

48.50 

53-75 

40.50 

21  

56.25 

42.00 

37-00 

28.75 

59-SO 

41-75 

42.50 

33-75 

60.50 

48.50 

48.50 

37-7S 

28  

66.50 

40.75 

43-50 

31.25 

76.00 

40.00 

40.25 

36.50 

67.00 

52.50 

47-50 

42-7S 

July      S  

63.75 

42.75 

41.50 

32.00 

69.50 

49-00 

39-25 

38.00 

65.00 

48.75 

48.50 

41.00 

12  

70.25 

36.75 

47.00 

30.75 

74-25 

61.00 

41  .00 

41  .00 

66.00 

S2.50 

52.00 

43-00 

19  

7I-7S 

S3-  75 

47-00 

32.50 

77-25 

52-75 

50.25 

39.25 

71.00 

5S-SO 

45.00 

45-00 

26  

76.00 

52.25 

44.50 

31.25 

79.50 

54-75 

4S-75 

35-50 

72.25 

54-25 

56.00 

46.00 

Aug.       2  

84.00 

53-00 

54-75 

36.25 

81.00 

49-25 

46.75 

17-oo 

65.25 

47-50 

61.00 

47-00 

9  

77.  7  S 

54-25 

49-50 

32.75 

84.00 

58.25 

46.75 

45-So 

73-75 

55-00 

53-50 

52.00 

16  

86.00 

64-25 

SS.oo 

38.25 

85.00 

60.00 

49-50 

43-00 

73-25 

57-50 

47-50 

47-50 

23  

82.50 

65-25 

51.25 

41.25 

84.00 

67.25 

47-50 

44.00 

75-50 

58.25 

53-25 

51.00 

30  

81.50 

58-25 

48.50 

41.50 

81.50 

59-50 

48.50 

44-50 

70.00 

58.50 

63.00 

53-SO 

Sept.     6  

81.75 

66.50 

52.25 

41.25 

85.50 

47-00 

51.00 

46-50 

72.00 

39-75 

61.75 

6l-75 

13  

83.00 

68.50 

Si.SO 

40.00 

79-50 

70.25 

46.00 

46.00 

83-SO 

50.00 

57-00 

50-25 

20  

80.75 

70.75 

49-50 

40.75 

83-50 

72.25 

47-00 

46.50 

80.00 

51-50 

77-00 

41  .00 

27  

78-75 

70.00 

50.50 

38.00 

88.00 

66.00 

48.50 

43.00 

86.00 

55-50 

S9-50 

59-50 

Oct.      4  

80.00 

68.75 

52-25 

42.00 

81.50 

49.00 

50.00 

44-75 

79-00 

60.00 

68.00 

55-25 

ii  

82.25 

67.00 

S2-  So 

38.50 

83.50 

72.50 

51.50 

43-75 

83-25 

61.00 

66.00 

66.00 

18  

79.00 

67.00 

50.25 

41.75 

83.75 

57-25 

50.25 

45-00 

71.25 

71-25 

72.00 

59.00 

25  

79-25 

68.00 

53-25 

41.50 

86.00 

73-00 

45-75 

40.50 

75-00 

65.00 

6i.75 

57-25 

Nov.     i  

85-25 

70.75 

51-75 

41.00 

92.50 

69.50 

52.75 

41-75 

70.50 

56.75 

65-50 

61.50 

8  

85.00 

74-25 

SS.oo 

42.00 

105.50 

71.25 

51.25 

45-50 

So.  so 

54-00 

66.00 

'57.00 

IS  

93  75 

76.7S 

52.00 

41.75 

98.75 

73.00 

53-25 

48.50 

T8.2C 

55-50 

69.00 

44.50 

22  

116.25 

72.00 

59.00 

43.25 

96.00 

76.00 

54-75 

47.50 

84.00 

51-50 

69.50 

60.75 

29  

107.00 

71-75 

61.25 

45.75 

107.50 

80.00 

56.75 

56.75 

81.00 

65.00 

78.50 

48.00 

Dec.      6  

116.00 

78.00 

66.25 

41.00 

107.00 

80.75 

56.00 

48.75 

Si.75 

74-50 

73.25 

73-25 

13  

115.50 

91.25 

69.00 

4S.oo 

109.75 

93.00 

64.00 

SS-SO 

96.00 

68.50 

"5.25 

SS-75 

20  

128.50 

93-75 

71-75 

45.50 

114.25 

93-75 

71.00 

SS-SO 

106.00 

67-50 

84-So 

61.00 

'7  

140.50 

121.  OO 

73-25 

40.25 

IIO.OO 

94-50 

64.00 

49-25 

91-75 

74-00 

93.00 

92.00 

1920 

Jan.      3  

134-00 

116.25 

76.00 

46.25 

130.75 

93-50 

76.25 

76-25 

85.00 

72.00 

82.50 

82.50 

10  

156.00 

82.00 

84.50 

55-75 

132.50 

102.25 

74-00 

50.75 

88.25 

65.00 

82.00 

60.75 

17  

156.00 

112.  OO 

83-25 

64.00 

140.00 

103.75 

81.75 

64.50 

116.00 

80.25 

99-50 

62.00 

24  

161.00 

122.  OO 

81.50 

55-00 

153.75 

99.50 

89.00 

67.75 

116.00 

83.50 

123-25 

81.50 

31  

'S7-75 

134-50 

9?  -25 

69-50 

149.00 

IOO.OO 

89.00 

77.25 

130.00 

76.75 

103.50 

103-50 

Feb.      7  

171.00 

127.00 

92.00 

58-75 

149.50 

117.25 

85.00 

69.25 

130.00 

71-75 

109.75 

98.25 

14  

166.00 

140-75 

96-25 

76.25 

159.00 

128.25 

101.00 

82.75 

131.00 

93-00 

102.50 

102.50 

22  

167.00 

147.00 

98.50 

77-00 

158.50 

122.  OO 

91.00 

79.00 

121.25 

IOO.OO 

119.50 

io6.-»5 

28  

171-50 

132.75 

99.00 

80.75 

162.75 

93-25 

CHART  NO.  III. 


[181] 


1 82  OPEN  PRICE  ASSOCIATIONS  [346 

from  a  study  of  these  sales  reports  reveals  nothing  of  impor- 
tance respecting  the  influence  exerted  by  the  open  price  system 
on  prices.  Perhaps  it  is  reasonable  to  assume  that  on  a  rapidly 
declining  market  sales  reports  would  have  been  equally  worth- 
less as  an  index  of  the  trend  of  prices. 

The  failure  of  the  sales  reporting  feature  of  the  Open  Com- 
petition Plan  to  fulfil  its  mission  in  this  instance  points  to  the 
important  conclusion  that,  when  confronted  by  abnormal  condi- 
tions, the  system  may  prove  too  inflexible  to  adapt  itself  to  the 
new  situation,  the  consequence  being  that  the  course  of  prices  is 
less  affected,  perhaps,  than  it  would  otherwise  be.  Probably  the 
course  of  prices  would  not  be  totally  unaffected,  because  other 
features  of  the  open  price  system  might  continue  to  function 
more  or  less  normally.  The  open  price  machinery  involved  in 
the  interchange  of  information  pertaining  to  stocks,  output  and 
the  like  might  continue  to  operate  effectively. 

THE  NEED  OF  EXERCISING  CARE  IN  CHOOSING 

DATA  FOR  STUDY 

Considerable  discretion  must  be  exercised  in  making  a  choice 
of  open  price  associations  for  study.  Many  so-called  open  price 
associations  are  in  reality  combinations  in  restraint  of  trade, 
seeking  to  conceal  their  real  identity  by  calling  themselves  open 
price  associations.  Associations  of  this  character  accomplish 
their  purpose  to  curtail  production,  or  maintain  or  enhance  prices 
by  "educating"  members  to  act  in  harmony  in  pursuance  of  a 
common  policy.9  In  its  report  on  the  lumber  industry  the  For- 
est Bureau  of  the  United  States  Department  of  Agriculture  con- 
cluded that  there  was  a  clear-cut  distinction  between  the  services 
performed  by  open  price  associations  and  activities  in  restraint 
of  trade.10  No  doubt  this  is  true,  but  as  has  been  indicated  in 
the  preceding  chapter,  some  so-called  open  price  associations  are 
so  clever  in  their  "educational"  activities  that  only  the  most 
discerning  are  able  to  properly  discriminate  between  these  activi- 
ties and  those  carried  on  by  true  open  price  associations  which 
exist  for  the  legitimate  purpose  of  keeping  members  properly 

•See  Ch.  8,  pp.  175-182. 

"Report  entitled  "Some  Public  and  Economic  Aspects  of  the  Lumber  Industry," 
Jan.  24,  1917,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II,  p.  1198. 


34?]  INFLUENCE  ON  PRICES  iSj 

informed  of  market  conditions.  If  an  investigator  making  a 
study  of  the  influence  of  open  price  activity  on  prices  were  to 
commit  the  error  of  choosing  for  study  an  association  more  prop- 
erly termed  a  combination,  the  results  obtained  from  such  an 
investigation  would  obviously  be  vitiated  as  far  as  being  a  reflec- 
tion of  true  open  price  activity  is  concerned.  Results  of  this  kind 
would  not  only  have  no  scientific  worth,  but,  if  given  currency, 
might  work  a  grave  injustice  to  the  cause  of  legitimate  open 
price  activity. 

INFLUENCES  AT  WORK 

It  has  been  argued  elsewhere11  that  a  knowledge  on  the  part 
of  buyers  and  sellers  of  their  own  interest,  implying  a  knowledge 
of  all  conditions  that  might  have  a  bearing  on  the  supply  of  and 
the  demand  for  a  given  unit  of  commodity,  together  with  the 
ability  and  willingness  to  act  intelligently  thereon,  would  result 
in  similar  exchanges  taking  place  on  smilar  terms;  or  to  state 
the  proposition  in  terms  of  price,  it  would  result  in  the  naming 
of  an  equilibrium  price  "for  the  same  unit  of  the  same  quality 
of  the  same  article  in  the  same  market."  Jevons  expresses  the 
same  thought  when  he  says,  that  "in  the  same  market,  at  any 
one  moment  there  cannot  be  two  prices  for  the  same  kind  of 
article."12  The  concept  here  conveyed  is  undoubtedly  at  the  basis 
(consciously  or  unconsciously)  of  the  arguments  of  those  who 
contend  that  open  price  work  enhances  competition  and  stabilizes 
prices.13 

"Ch.  3,  pp.  44-47. 

12Jevons,  W.  Stanley,  The  Theory  of  Political  Economy,  p.  91. 

"By  way  of  illustration  of  the  point  of  view  that  open  price  activity  tends  to 
stabilize  prices,  an  extract  from  a  report  rendered  to  members  of  the  American 
Hardwood  Manufacturers'  Association  by  a  committee  appointed  to  look  into  the 
merits  of  the  open  price  plan  and  devise  a  system  applicable  to  the  hardwood  in- 
dustry is  quoted: 

"By  making  prices  known  to  each  other  they  will  gradually  tend  toward  a 
standard  in  harmony  with  market  conditions,  a  situation  advantageous  to  both 
buyer  and  seller.  The  committee  does  not  expect  this  plan  to  result  in  one  price 
for  any  one  grade  and  the  difference  between  even  the  same  grades  of  various  manu- 
facturers is  well  recognized.  It  is  contended,  however,  that  in  a  very  short  time 
the  extreme  range  of  prices  on  any  one  grade  will  be  materially  reduced  and  eventu- 
ally the  prices  obtained  will  be  in  direct  relation  to  the  character  of  the  grade  offered 
and  the  prevailing  market  conditions."  American  Lumberman,  Feb.  30,  1917. 
The  Forest  Service  of  the  U.  S.  Dept.  of  Agriculture  also  concludes  that  open  price 


184  OPEN  PRICE  ASSOCIATIONS  [348 

If  all  the  factors  in  operation  in  the  case  of  open  price  activity 
are  identical  with  those  which  find  expression  in  the  law  of 
supply  and  demand  (i.  e.  the  economic  principle  described 
above),  it  seems  reasonable  to  conclude  that  open  price  work 
does  lead  to  exchanges  taking  place  on  similar  terms,  with  uni- 
form rates  emerging  as  a  matter  of  course.  It  is  conceivable, 
however,  that  price  uniformity  can  emerge  through  association 
work,  despite  differences  in  the  factors  at  work,  but  it  is  not 
thought  that  such  uniformity  will  ensue  as  a  result  of  sellers 
acting  independently  of  each  other  in  their  capacity  of  bargain- 
ers, but  rather  that  it  will  come  as  a  result,  not  necessarily  of 
direct  agreement,  but  of  the  power  of  suggestion,  perhaps,  con- 
veyed to  members  by  precept  or  example  emanating  from  lead- 
ers. By  a  long  stretch  of  the  imagination  it  is  possible  to  conceive 
of  price  uniformity  being  achieved  without  premeditation — if 
members  form  the  habit,  for  instance,  of  guiding  their  own  price 
policy  by  that  of  one  or  two  of  the  outstanding  leaders  in  the 
industry.  In  fact,  the  consummation  of  such  a  result  may  be 
facilitated  by  the  very  ignorance  of  buyers.  Lacking  the  power 
that  comes  with  knowledge  they  are  likely  to  look  upon  the 
competitive  situation  which  confronts  them  as  being  unchangeable 

work  tends  to  unify  rates.  See  Report  on  Timber  Depletion,  Lumber  Prices,  Lumber 
Exports,  and  Concentration  of  Timber  ownership,  June  i,  1920,  p.  68. 

The  view  that  open  price  work  increases  competition  may  be  illustrated  by  an 
extract  taken  from  testimony  given  by  W.  M.  Stark,  a  manufacturer  of  hardwoods, 
in  the  Hardwood  case: 

"Affiant  says  that  from  his  observation  of  the  Open  Competition  Plan,  he  is 
convinced  that  there  is  nothing  whatever  in  the  nature  of  the  plan  itself  or  its  use 
by  the  American  Hardwood  Manufacturers'  Association  which  has  tended  or  will 
tend  to  suppress  or  restrict  competition,  but  on  the  contrary,  it  tends  to  create  a 
freeer  and  broader  and  more  unrestricted  market  in  which  all  sellers  and  buyers  may 
and  do  freely,  actively  and  intelligently  compete.  While  knowledge  of  market  con- 
ditions will  naturally  and  properly  enable  some  persons  to  sell  to  better  advantage 
than  if  dealing  in  the  dark,  this  is  only  an  incident  of  any  open  market  against 
which  should  be  considered  the  general  effect  on  market  conditions  as  a  whole  and 
in  the  long  run.  From  this  aspect,  information  which  directs  the  production  and 
selling  efforts  of  lumbermen  to  supplying  the  market  needs  for  which  and  market 
points  at  which  there  is  the  greatest  demand,  necessarily  increases  competition 
and  works  for  the  benefit  of  the  buyers  and  consuming  public.  Obviously  and 
properly,  it  also  works  for  the  benefit  of  the  lumberman,  as  they  can  only  profit  by 
supplying  the  demand."  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol. 
II,  p.  1260. 


349]  INFLUENCE  ON  PRICES  183 

and  may  accept  such  prices  as  are  quoted  them  out  of  a  spirit 
of  helplessness  born  of  the  feeling  that  they  are  powerless  to  do 
otherwise. 

The  problem  which  we  'face,  then,  is  to  determine  to  what 
extent  there  is  justification  for  believing  that  open  price  work  is 
a  realization  of  the  ideal  kind  of  competition  contemplated  by 
the  law  of  supply  and  demand,  presupposing  the  existence  of  an 
open  market  in  which  numerous  buyers  and  numerous  sellers, 
each  conscious  of  the  bids  and  offers  of  the  others,  work  out  a 
common  price.  Assuming  for  the  present  that  sellers,  through 
open  price  work,  possess  sufficient  knowledge  of  market  condi- 
tions to  enable  them  to  act  with  intelligence  in  the  furtherance 
of  their  interests,  are  also  buyers  in  this  happy  position?  The 
burden  of  the  argument  in  chapter  three  is  that  they  are  noti14 
In  that  chapter  the  reader's  attention  was  called  to  the  fact  that 
Mr.  Eddy  designed  the  open  price  plan  primarily  from  the  point 
of  view  of  the  seller.  Moreover  the  observation  has  also  been 
made  elsewhere  that  with  a  few  exceptions,  open  price  associa- 
tions are  not  disposed  to  give  buyers  access  to  information  which 
they  have  accumulated.15 

Previous  to  the  inauguration  of  the  open  price  movement, 
buyers  held  the  advantage  in  bargaining.  By  making  wide  in- 
quiries for  bids  they  were  enabled  to  ascertain  roughly,  at  least, 
what  ruling  prices  were — and  the  accuracy  of  these  prices  was 
of  course  unquestioned.  But  the  seller,  as  a  rule,  was  in  igno- 
rance regarding  the  prices  that  competitors  were  asking,  except 
in  so  far  as  salesmen  and  buyers  kept  him  informed.  The  latter 
found  it  profitable  to  misrepresent  to  the  seller  the  character  of 
prevailing  prices,  with  the  result  that  the  seller  was  often  de- 
ceived into  meeting  prices  which  had  never  been  quoted,  the 
prices  thus  made  being  less  than  market  conditions  justified. 

"See  pp.  48-49. 

"See  ch.  4,  p.  56,  where  it  is  stated  that  membership  is  usually  limited  to  manu- 
facturers in  the  particular  line  of  business  involved.  The  Federal  Trade  Com- 
mission in  a  report  submitted  to  President  Harding,  April  17,  1921,  is  quoted  as 
saying:  "The  collection  and  public  dissemination  of  statistical  data  might  make  the 
operation  of  such  associations  (open  price)  of  benefit  to  the  producer  and  the  con- 
sumer alike,  but  unfortunately  the  tendency  is  here  manifested  to  confine  the  in- 
formation to  members."  Chicago  Tribune,  April  18,  1921. 

A  notable  exception  is  the  American  Hardwood  Manufacturers'  Assn. 


1 86  OPEN  PRICE  ASSOCIATIONS  [350 

With  the  initiation  of  the  open  price  movement,  however,  buy- 
ers find  the  tables  turned  against  them.  They  discover  that  they 
are  at  a  disadvantage  in  bargaining,  principally,  first,  because 
they  do  not  know  what  other  buyers  are  paying;  second,  because 
they  are  ignorant  of  the  character  of  demand  and  supply;  third, 
because  they  are  unable  to  make  accurate  predictions  of  future 
market  conditions.  They  lack  the  data  upon  which  calculations 
of  this  kind  are  based.  Much  of  these  data,  such  as  information 
bearing  on  production  and  stocks,  for  instance,  is  not  obtainable 
by  buyers  except  with  the  cooperation  of  the  sellers.  We  have 
here,  then,  a  situation  in  which  the  sellers  as  a  class  are  well 
informed  of  market  conditions,  whereas  the  buyers  as  a  class  are 
poorly  informed.  Since  one  of  the  important  premises  to  the 
law  of  supply  and  demand,  namely,  that  both  buyers  and  sellers 
must  be  acquainted  with  all  conditions  affecting  their  competi- 
tive situation,  is  violated,  it  follows  that  similar  exchanges  among 
buyers  and  sellers  cannot  take  place  on  similar  terms.  Jevons 
specifically  mentions  imperfect  knowledge  of  the  market  as  one 
of  the  "extraneous  circumstances"  which  interfere  with  the  un- 
disturbed functioning  of  this  economic  principle.16  The  advan- 
tage enjoyed  by  the  seller  over  the  buyer  in  consequence  of  his 
superior  knowledge  of  market  conditions  probably  will  express 
itself  in  the  exaction  of  a  higher  price  than  would  otherwise 
obtain.  One  must  conclude,  then,  that  members  of  an  open  price 
association  are  in  a  position  to  exact  higher  prices  than  they 
could  were  buyers  equally  well  informed  or  were  not  open  price 
activity  existent.17 

This  conclusion,  however,  is  based  on  the  assumption  that 
members  are  able  to  press  their  advantage  to  the  limit  without 
hindrance.  Such  a  situation,  of  course,  obtains  only  in  theory. 
This  invites  the  question:  to  what  extent  in  practise  may  open 
price  associations  be  able  to  utilize  the  theoretical  advantage 

uTheory  of  Political  Economy,  p.  91. 

17The  Secretary  of  the  National  Association  of  Purchasing  Agents  writes  in  part: 
"The  real  function  of  the  open  price  association,  as  we  see  it,  is  to  permit  pro- 
ducers to  charge  for  their  commodities  not  on  the  basis  of  their  production  costs  or 
real  competition  values,  but  on  the  basis  of  all  that  the  market  will  stand.  Natur- 
ally purchasing  agents  cannot  be  expected  to  sympathize  with  this  view  point." 
Letter  from  L.  F.  Boffey,  Feb.  1 6, 1921. 


351]  INFLUENCE  ON  PRICES 

enjoyed  by  them  in  consequence  of  their  superior  facilities  for  ob- 
taining adequate  market  information?  The  task  involved  in  bring- 
ing to  light  the  numerous  influences  that  are  undoubtedly  wrapped 
up  in  this  situation  is  one  that  is  difficult  if  not  impossible  of 
achievement.  A  study  of  those  influences  which  suggest  them- 
selves to  the  writer  convinces  him  that  in  practise  open  price 
associations  are  little  able  to  utilize  their  superior  knowledge  of 
the  market  to  the  end  of  imposing  higher  prices  upon  the  buyer. 

Influences  at  work  tending  to  minimize  the  effect  of  open  price 
work  on  prices  can  be  traced  to  the  following  sources:  first,  de- 
fects in  the  operation  of  the  reporting  system;  second,  failure 
of  members  to  utilize  the  information  conveyed  to  them  through 
the  reporting  system;  third,  the  limited  sphere  of  control  exer- 
cised by  open  price  associations. 

Defects  in  the  operation  of  the  reporting  system  manifest 
themselves  chiefly  in  the  following  ways:  first,  by  incomplete 
standardization  of  the  articles  about  which  price  information  is 
exchanged,  making  price  comparisons  more  or  less  worthless; 
second,  by  the  unreliable  character  of  information  collected  and 
disseminated. 

Obviously  price  comparisons  can  not  be  made  if  the  articles 
about  which  price  information  is  exchanged  are  not  comparable 
in  every  respect.  Differences  in  size,  shape,  quality,  workman- 
ship, and  the  like,  are  bound  to  reflect  themselves  in  differences 
in  price.  Where  these  differences  persist  there  is  lacking  the 
common  basis  for  comparison  that  is  needed  if  interchange  of 
information  is  to  have  any  effect  on  the  course  of  prices.  Stand- 
ardization sufficiently  adequate  to  make  prices  comparable  is 
difficult  of  achievement.  This  fact  has  been  commented  upon 
in  another  connection.18 

To  what  has  been  stated  there  by  way  of  elucidation  of  some 
of  the  difficulties  involved,  may  be  added  some  comments  by 
Mr.  C.  H.  Rohrbach  and  John  Allen  Murphy  taken  from  an 
article  of  theirs  which  appeared  in  Printers  Ink:  "The  prices  of 
leading  makes  of  talking  machines  are  not  alike  and  no  amount 
of  price  information  could  get  them  on  the  same  basis,  because 
they  are  not  alike  in  quality  and  workmanship.  Take  leather 

1SCH.  6,  pp.  1 18, 125, 126. 


J88  OPEN  PRICE  ASSOCIATIONS  [352 

belting,  corsets,  air  compressors,  office  furniture,  overalls,  knit 
goods,  hydraulic  pumps,  silverware,  clocks,  vacuum  cleaners,  etc. 
— some  of  which  have  and  others  have  not  an  open  price  associa- 
tion. There  are  too  many  dissimilarities  in  these  products  to 
permit  their  getting  on  a  uniform  basis,  and  altho  the  open 
price  idea  may  be  of  use  in  some  such  cases,  it  can  only  be  of 
limited  help  to  the  individual  manufacturer  in  determining  what 
he  shall  get  for  his  product.  It  can  not  establish  a  uniform 
price."19 

In  chapter  six  where  the  advantages  and  disadvantages  asso- 
ciated with  open  price  work  received  attention,  it  was  pointed  out 
that  the  usefulness  of  the  open  price  association  is  very  frequently 
seriously  impaired  because  the  information  interchanged  is 
either  inaccurate,  misleading,  or  obsolete.  If,  for  any  of  these 
reasons,  members  become  distrustful  of  the  reliability  of  the 
sources  of  information  which  they  receive  they  are  likely  to  act 
independently  of  that  information  and  in  consequence  prices  are 
less  influenced  than  would  otherwise  be  the  case.20 

Failure  of  members  to  utilize  the  information  conveyed  to 
them  through  the  operation  of  the  open  price  system  may  be  due 
either  to  a  deliberate  disregard  of  such  information,  or  to  inability 
to  understand  it,  or  to  inability  to  act  upon  it  even  tho  under- 
stood.21 One  secretary  writes  that  members  have  frequently 
addressed  letters  to  him  inquiring  what  ruling  prices  for  certain 
commodities  were,  whereas  the  sales  reports  containing  this  in- 
formation were  probably  lying  on  their  desks  at  the  very  time 
when  they  were  mailing  their  letters.  Many  members,  no  doubt, 
disregard  the  reports  received  because  to  properly  understand 
and  interpret  them  these  reports  must  be  given  time  and  thought, 
and  this  they  are  unwilling  to  do.  No  doubt  there  are  also  those 
who  cannot  understand  the  reports.  More  often,  perhaps,  in- 
formation is  not  utilized  because  members  find  themselves  in  a 
position  where  they  are  unable  to  act  upon  it.  To  give  one  in- 
stance,— information  received  from  the  central  office  may  make 

"Rohrbach,  C.  H.,  and  Murphy,  J.  A.,  "The  Reverse  Side  of  the  Open  Price  Asso- 
ciatson,"  Printer's  Ink,  June  24,  1920,  p.  41. 
*°See  pp.  122,  124. 

pp.  1 19,  120,  121. 


353]  INFLUENCE  ON  PRICES  189 

it  clear  that  market  conditions  are  such  as  to  make  it  feasible 
to  cease  manufacturing  for  a  period.  The  necessity  of  meeting 
heavy  overhead  expenses  may  force  the  manufacturer  to  continue 
operations,  despite  the  fact  that  his  better  judgment  would  dictate 
a  policy  of  curtailment.  Failure  to  utilize  information  is  there- 
fore another  factor  operating  to  prevent  open  price  work  from 
influencing  the  course  of  prices. 

It  is  thought  that  because  of  the  serious  obstacles  operating  to 
prevent  the  spread  of  open  price  activity,  particularly  in  the 
larger  industries  where  competitors,  as  a  rule,  are  relatively 
numerous,  if  statistics  could  be  made  available,  they  would  dis- 
close that  open  price  associations  do  not  enjoy  a  controlling 
influence  in  many,  if  any,  of  the  larger  industries.22  If  this  be 
true,  there  is  ample  reason  to  believe  that  open  price  associations, 
as  constituted  at  present,  are  able  to  exert  little  influence  on  price 
movements.  Their  sphere  of  influence  and  control  is  confined 
within  too  narrow  limits.  They  find  themselves  more  or  less 
helpless  to  influence  the  price  situation,  first,  because  of  the  pres- 
ence of  indirect  and  potential  competition;  second,  because  of  the 
power  exerted  over  price  movements  by  competitors  who  are 
not  association  members.  By  reason  of  the  danger  of  competition 
from  substitutes  and  new  capital,  prices  are  likely  to  be  confined 
to  narrower  limits  of  variation  than  would  otherwise  be  the  case. 
What  these  limits  will  be,  assuming  that  no  other  conflicting 
factors  enter  into  the  situation,  will  largely  depend,  on  the  one 
hand,  upon  the  ease  with  which  potential  competition  can  become 
actual  competition,  and  on  the  other  hand,  upon  consumers' 
willingness  and  readiness  to  resort  to  substitutes.23 

If  the  sphere  of  control  is  insufficient  to  permit  the  educating 
influence  of  the  association  to  be  felt  by  competitors  in  whom 
are  represented  a  substantial  proportion  of  the  total  productive 
capacity  of  the  industry,  it  appears  more  than  probable  that  the 
competitors  outside  the  sphere  of  this  influence  will  be  more 

MFor  discussions  bearing  on  this  matter,  see  ch.  i,  pp.  5-6;  ch.  6,  pp.  1 13-126. 

MMr.  H.  R.  Tosdal,  in  an  article  on  "Open  Price  Associations,"  concludes  that, 
"in  the  absence  of  some  basis  for  monopoly,  the  condition  of  higher  than  normal 
return  would  attract  new  capital  and  eventually  the  rate  of  return  would  be  re- 
stored to  normal."  See  American  Economic  Review,  Vol.  VII,  No.  2,  June  17, 
,  P.  352. 


I9O  OPEN  PRICE  ASSOCIATIONS  [354 

instrumental  in  determining  the  price  situation  than  will  asso- 
ciation members.  Competitors  outside  the  ranks  of  membership 
are  presumably  less  well  informed  about  conditions  affecting  the 
market  than  are  members.  As  a  class  their  knowledge  of  the 
costs  of  doing  business  is  less  thoro.24  Lacking  information 
bearing  on  the  character  of  the  competitive  situation,  and  being 
relatively  ignorant  of  costs,  it  is  very  probable  that  in  their 
anxiety  to  make  sales  they  will  permit  themselves  to  quote  lower 
prices  than  they  would  if  they  were  acquainted  with  all  the 
facts.  The  disposition  of  many  buyers  to  take  advantage  of  the 
ignorance  of  sellers,  inducing  them  through  misrepresentation 
to  quote  lower  prices  than  competitive  conditions  warrant,  gives 
added  weight  to  this  prediction.  Knowledge  brings  power. 
Lacking  knowledge,  it  becomes  almost  a  certainty  that  com- 
petitors outside  the  ranks  of  membership  in  an  open  price  asso- 
ciation will  obtain  lower  prices  than  those  inside.  Many  manu- 
facturers of  hardwood  lumber,  particularly  those  who  had  no 
sales  organization,  attested  to  the  fact  that  they  had  sustained 
losses  which  they  could  have  averted  if  they  had  had  proper 
market  information.  Other  manufacturers,  not  belonging  to  the 
American  Hardwood  Manufacturers'  Association,  who  had  sales 
organizations,  fared  a  little  better  because  their  salesmen  kept 
them  acquainted  in  some  degree  with  the  trend  of  the  market. 
If  low  priced  competitors  are  present  in  an  industry  in  suffi- 
cient numbers  they  are  likely  to  exert  the  principal  determining  in- 
fluence in  the  establishment  of  market  rates  for  purchasers  will  give 
their  custom  to  those  who  make  the  best  prices,  assuming  that 
all  other  conditions  entering  into  the  situation  are  equal.  The 
fact  that  all  other  conditions  are  not  on  a  par  of  equality  prob- 
ably accounts  in  some  degree  for  the  fact  that  prices  which  are 
recognized  as  being  typical  of  the  market  are  somewhat  higher 
than  those  obtained  by  the  lowest  priced  competitors.  For  one 
thing  the  lowest  priced  competitors  may  lack  the  necessary 

MMr.  E.  N.  Hurley,  former  chairman  of  the  Federal  Trade  Commission  has 
stated  that  only  10  per  cent  of  manufacturers  and  merchants  know  the  cost  to 
manufacture  or  sell  their  products;  that  40  per  cent  estimate  what  their  costs  are 
and  50  per  cent  have  no  method  of  determining  their  costs  but  price  their  goods 
arbitrarily.  See  article  in  Metal  Worker,  Plumber  &  Steam  Fitter,  "Trade  Associa- 
tions and  Business  Methods,"  Vol.  CXXI,  p.  473,  Jan.  9,  1916. 


355]  INFLUENCE  ON  PRICES  IQI 

productive  capacity  to  handle  large  orders;  then,  too,  their 
product  may  not  be  up  to  standard,  or  they  may  be  unreliable 
in  some  other  way.  Nevertheless,  the  influence  of  these  low 
prices,  as  well  as  those  not  so  low,  quoted  by  non-members,  ex- 
poses members  to  the  danger  of  losing  some  of  their  custom. 
If  the  productive  capacity  represented  by  these  outside  com- 
petitors is  sufficiently  great,  members  will  be  compelled  to  place 
their  rates  in  line  with  theirs  in  order  to  insure  for  themselves 
the  share  of  business  to  which  they  have  been  accustomed. 

That  some  open  price  associations  are  cognizant  of  the  fact 
that  their  limited  sphere  of  control  makes  them  more  or  less 
helpless  to  exert  any  substantial  influence  on  the  price  situation 
is  evident  from  the  following  extract  taken  from  a  letter  re- 
ceived by  the  writer  from  the  Secretary  of  the  Northern  Hem- 
lock and  Hardwood  Manufacturers'  Association: 

"In  view  of  the  fact  that  the  members  of  our  Association  pro- 
duce only  a  part  of  the  lumber  produced  in  this  territory,  in 
view  of  the  further  fact  that  this  territory  produces  only  a  small 
part  of  the  lumber  consumed  in  its  markets,  we  cannot  say  that 
the  information  we  have  supplied  our  members  has  had  any 
particular  effect  on  market  value  fluctuations. 

"There  is  about  sixteen  times  as  much  Pine  produced  as  there 
is  of  Hemlock  from  our  territory  and  six  or  seven  times  as  much 
Western  Lumber  and  all  of  these  come  into  direct  competition 
in  the  Chicago  market  belt. 

"Freight  rates  have  long  been  so  adjusted  as  to  bring  this 
about.  Our  Hemlock  prices  are  determined  by  the  market 
values  of  Southern  Pine  and  Western  Fir  and  our  Hardwood 
values  are  determined  by  the  market  values  of  Oak,  Gum  and 
Ash,  all  of  which  are  produced  in  much  greater  quantities  in 
other  sections  of  the  country,  but  adopted  to  the  same  uses  as 
our  Birch,  Beech  and  Maple.25 

No  doubt  there  will  be  found  many  instances  where  individual 
members  have  succeeded  in  getting  better  prices  as  a  result  of 
participation  in  open  price  work.  That  does  not  mean,  how- 
ever, that  the  association  (assuming  that  it  does  not  enjoy  a 
controlling  influence  in  the  industry)  has  succeeded  in  raising 

"Swan,  O.  T.,  Letter  dated  Jan.  4,  1921. 


192  OPEN  PRICE  ASSOCIATIONS 

prices  in  the  industry  as  a  whole,  nor  is  it  probable  that  in  the 
instances  where  members  have  been  able  to  obtain  better  prices, 
those  prices  have  been  any  higher  than  the  ones  current  among 
outside  competitors. 

The  data  brought  out  in  the  Hardwood  case  point  to  the 
conclusion  that  in  the  instances  where  members  did  obtain  better 
prices,  they  succeeded  in  doing  so  because  open  price  work  en- 
abled them  to  exact  the  so-called  market  price,  whereas  before 
they  had  been  unable  to  do  so.  As  previously  stated,  it  is 
significant  that  of  the  numerous  letters  received  by  the  manager 
of  statistics  of  the  American  Hardwood  Manufacturers'  Asso- 
ciation, in  commendation  of  the  Open  Competition  Plan,  every 
letter  asserting  that  the  plan  had  enabled  members  to  get  better 
prices  was  from  a  small  manufacturer.  Testimony  reveals  that 
as  a  class  the  small  producer  was  unable  to  command  the  market 
price  of  hardwood  lumber  because  buyers  took  advantage  of  his 
ignorance  of  market  conditions  to  beat  down  prices.  The  fol- 
lowing extracts  taken  from  affidavits  submitted  in  the  Hardwood 
Case  are  illustrative: 

"Affiant  maintains  no  sales  organization  and  markets  his 
products  largely  to  wholesalers.  *  *  For  this  reason  the  sales 
reports  of  the  Open  Competition  Plan  were  of  especial  value, 
for  the  reason  that  the  wholesalers,  from  the  nature  of  their 
business,  are  constantly  in  touch  with  the  market,  and  when 
purchasing  naturally  desire  to  buy  at  as  low  a  figure  as  possible. 
These  sales  reports  were  a  check  against  their  statements.  By 
virtue  of  these  reports,  he  was  enabled  to  get  nearer  the  market 
price  from  the  wholesalers.  *  *  Before  introduction  of  the 
Open  Competition  Plan,  certain  unscrupulous  middlemen  made 
a  practise  of  misrepresenting  the  prices  at  which  they  had  pur- 
chased lumber  from  neighboring  producers,  and  thereby  forced 
the  small  producer  to  make  an  abnormally  low  price.  This 
practise  has  been  done  away  with  by  the  Open  Competition 
Plan.  In  the  opinion  of  affiant,  this  is  one  of  the  chief  benefits 
derived  from  the  Open  Competition  Plan,  especially  as  to  the 
small  producers,  who  are  not  in  touch  with  the  market."26 

**Affidavitof  J.  M.  Morgan,  quoted  in  Argument  of  L.  C.  Boyle  before  the  U.  S. 
Supreme  Court,  American  Column  &  Lumber  Co.  vs.  U.  S.,  p.  70. 


357}  INFLUENCE  ON  PRICES  193 

Another  small  operator  attested  to  the  following: 
"As  an  operator  of  a  comparatively  small  mill,  which  main- 
tains no  sales  force,  he  found  these  reports  and  letters  of  great 
value  to  him.  Previously  to  belonging  to  the  Association  he 
was  largely  at  the  mercy  of  the  wholesaler,  to  whom  he  has 
always  sold  the  bulk  of  his  production.  For  instance,  in  1919 
his  concern  sold  3,331,000  feet  to  wholesalers  and  1,733,000  feet 
to  consumers.  Before  joining  this  association  and  receiving 
these  reports,  in  June  of  1919,  he  sold  first  and  second  quartered 
white  oak  to  wholesalers  for  $88.00  per  thousand  at  the  mill, 
or  $105.00  per  thousand  in  Boston.  For  which  these  wholesalers 
obtained  from  the  consumers  the  prevailing  price  of  $250.00 
per  thousand.  This  condition  of  ignorance  of  market  conditions 
worked  a  hardship  on  him  and  was  of  no  benefit  whatever  to 
the  consuming  public,  the  wholesaler  reaping  all  the  profit  on 
the  transaction. 

"That  a  small  producing  mill  without  a  sales  organization 
cannot,  under  present  conditions,  intelligently  do  business  unless 
through  some  association  or  other  means  that  keeps  him  in  touch 
with  market  conditions.  In  his  opinion,  the  Open  Competition 
Plan  has  been  of  great  benefit  to  the  small  producing  mills  and  has 
worked  no  hardship  whatever  on  the  consuming  public,  but  has 
resulted  in  reducing  to  a  considerable  extent  the  abnormal  profits 
obtained  by  the  wholesalers  and  middlemen  generally."27 
One  small  operator  wrote  to  the  manager  of  statistics: 
"From  my  experience  as  a  small  manufacturer,  this  (sales  re- 
port) is  one  of  the  most  important  services  the  Association  has 
given  me.  Before  becoming  a  member  of  the  Open  Competition 
Plan,  I  know  I  have  sold  a  good  many  cars  of  lumber  $3.00  or 
$4.00  under  the  market  to  wholesalers,  upon  which  they  have 
reaped  the  benefit  of  my  ignorance."28 

The  testimony  here  given  is  typical  of  many  other  sworn  state- 
ments submitted  by  small  manufacturers — all  of  which  point  to 
the  conclusion  that  the  chief  financial  benefit  accrued  to  the  small 

"Affidavt  of  J.  W.  Bailey,  quoted  in  Argument  of  L.  C.  Boyle  before  the  U.  S. 
Supreme  Court,  American  Column  &  Lumber  Co.  vs.  U.  S.,  p.  44. 

"Bohlson,  H.  G.,  Record,  American  Column  &  Lumber  Co.  vs.  U.  S.,  Vol.  II, 
No.  1138. 


194  OPEN  PRICE  ASSOCIATIONS  [358 

manufacturer,  participation  in  open  price  work  enabling  him 
to  exact  prices  nearer  to  the  general  run  of  the  market.  The 
prices  received  by  the  larger  producers  were  no  higher  than  those 
received  by  competitors  who  were  not  members  of  the  Open 
Competition  Plan.  As  previously  stated,  numerous  buyers  at- 
tested to  this  fact.29 

Incidentally  it  may  be  remarked  that  in  so  far  as  open  price 
work  does  enable  some  producers  to  obtain  prices  which  approx- 
imate more  closely  the  so-called  market  level,  to  that  extent 
prices  become  more  uniform  than  they  would  otherwise  be. 

Respecting  the  influence  of  open  price  activity  on  prices,  the 
following  summing  up  is  made  by  way  of  recapitulation: 

1.  Altho    theoretically    members    of    open    price    associations 
can  take  advantage  of  their  superior  knowledge  of  market  con- 
ditions to  exact  higher  prices  from  the  buyer  than  would  be 
possible  if  the  latter  were  equally  well  informed  or  open  price 
work  were  non-existent,  yet  in  practise,  it  is  thought  that  in 
most  industries,   at  least  of  the  larger  type,   buyers   suffer   no 
such  disadvantage,  for  the  reasons,  first,  that  the  effectiveness 
of  open  price  associations  is  compromised  by  defections  in  the 
open  price  system  itself  and  by  slackness  in  its  manner  of  use 
by  members;  second,  that  the  sphere  of  influence  of  open  price 
educational   activity  is   in  most  cases   too   limited  to  overcome 
the    influence    exerted    on    prices    by    (i)    outside    competitors, 
(2)  potential  competition  from  substitutes  or  new  capital. 

2.  Altho    open    price    work    probably    has    not    operated    to 
raise  the  general  run  of  market  prices  extant  in  the  industry  as 
a  whole,  in  certain  individual  instances  better  prices  have  been 
obtained,  these  inuring  in  the  main  to  the  smaller  producers, 
who,  prior  to  their  entry  into  open  price  work,  were  seldom  able 
to  exact  prices  recognized  to  be  the  current  market  rates,  but 
found   themselves   more   able   to  do   so   in   consequence   of  the 
better  acquaintance  with  market  conditions  derived  from  mem- 
bership in  the  open  price  plan. 

3.  Rates  are  not  likely  to  attain  any  degree  of  uniformity 
(except  in  so  far  as  the  higher  prices  obtained  by  low  priced 
competitors  through  participation  in  open  price  work  contributes 

"See  p.  147. 


359]  INFLUENCE  ON  PRICES  195 

toward  such  uniformity),  unless  members  exercise  a  controlling 
influence  over  the  industry,  in  which  case  uniformity  may  be 
attained,  not  through  more  free  competition  ensuing  from  a  com- 
petitive situation  in  which  both  buyers  and  sellers  are  conscious 
of  all  influences  affecting  demand  and  supply  and  therefore 
awake  to  their  interests,  as  is  held  in  contemplation  by  the  law 
of  supply  and  demand,  but  through  the  very  ignorance  of  buyers, 
resulting  in  docile  acceptance  of  a  rate  made  more  or  less  uni- 
form, if  not  by  direct  agreement  among  members,  perchance  by 
the  power  of  suggestion,  emanating  from  leaders,  perhaps  in  the 
form  of  precept  or  example. 


CHAPTER  X 

OPEN  PRICE  ASSOCIATIONS  AND  THE 
PUBLIC  WELFARE 

In  estimating  the  value  of  the  open  price  association,  the  all- 
important  question  is,  what  influence  does  its  operation  have  on 
public  welfare?  Is  it  likely  to  prove  a  detriment  or  a  benefit? 
When  one  reflects  that  the  open  price  movement  is  but  in  its 
infancy,  and  that  therefore  the  fund  of  experience  and  data  is 
necessarily  incomplete,  it  seems  indiscreet,  indeed,  to  make  a 
positive  assertion  one  way  or  the  other.  Despite  the  inconclusive 
character  of  data  based  on  observation  and  experience,  perhaps 
a  consideration  of  such  of  the  theoretical  aspects  of  the  problem 
as  suggest  themselves  will  be  helpful  in  seeking  out  a  solution. 

On  the  assumption  that  competition  in  business  is  the  condition 
of  trade  most  conducive  to  public  welfare,  does  open  price  activity 
give  promise  of  ushering  in  a  regime  more  akin  to  the  ideal  kind 
of  competition  held  in  contemplation  by  the  law  of  supply  and 
demand,  or  is  it  likely  to  place  obstacles  in  the  path  of  an  approach 
to  more  free  competition?  Mr.  Eddy  evidently  thought  that 
in  creating  the  open  price  system,  he  was  giving  the  commercial 
world  an  instrument  calculated  to  bring  about  a  new  competitive 
regime  wherein  the  much  sought  after  stability  of  business  con- 
ditions would  be  achieved  through  intelligent  competition  replac- 
ing ignorant  and  secret  competition.  The  conception  underlying 
his  plan,  to-wit,  that  knowledge  is  the  essence  of  competition, 
Mr.  Eddy  undoubtedly  believed  to  be  an  original  contribution 
to  economic  thought,  whereas  the  truth  of  the  matter  is  that 
economists  in  their  formulation  of  the  law  of  supply  and  demand, 
have  hypothecated  their  law  of  competition  upon  the  very  as- 
sumption that  buyers  and  sellers  possess  enough  knowledge  of 
the  factors  influencing  the  competitive  situation-  to  make  them 
conscious  of  their  own  interests  as  bargainers.  Not  only  is  the 

196 


361]  INFLUENCE  ON  PUBLIC  WELFARE  197 

concept,  that  knowledge  is  the  essence  of  competition  not  original 
with  Mr.  Eddy  but  his  statement  that  true  competition  will  ensue 
"only  where  there  are  two  or  more  competitors1  competing  under 
conditions  that  enable  each  to  know  and  fairly  judge  what  the 
others  are  doing"  is  untenable  for  the  law  of  supply  and  demand 
assumes  that  all  parties  to  a  competitive  situation  are  well  enough 
informed  to  be  capable  of  acting  in  accordance  with  their  in- 
terests. "All  parties"  include  the  buying  class  as  well  as  the 
selling  class.  Obviously,  any  concept  of  competition  which  leaves 
out  of  consideration  the  buying  class  is  utterly  inadequate  as  a 
solution  to  the  problem  of  achieving  true  competition.  The 
acceptance  of  Mr.  Eddy's  poi,nt  of  view  would  mean  an  endorse- 
ment of  the  idea  that  a  nearer  approach  to  ideal  competitive 
conditions  will  ensue  if  the  salient  facts  of  competition  are  made 
known  to  sellers,  leaving  buyers  to  continue  in  a  state  of  com- 
parative ignorance.  The  mere  statement  of  this  proposition 
convinces  one  of  its  fallaciousness.  Obviously  buyers  cannot 
hold  their  own  in  their  capacity  of  bargainers  if  sellers  are  well 
informed  and  they  are  not.  Inasmuch  as  the  open  price  plan 
as  devised  by  Mr.  Eddy  embodies  this  fallacious  concept  and  is 
heralded  by  him  as  a  practical  scheme  for  ushering  in  true  com- 
petition, it  also  must  share  the  same  criticism.  Neither  the  open 
price  plan  nor  the  concept  upon  which  it  is  founded  give  promise 
of  solving  the  problem  of  achieving  true  competition.  The  plan 
is  devised  from  the  point  of  view  of  the  seller,  the  purchaser  hav- 
ing no  part  to  play  in  its  organization.  All  that  can  be  claimed 
for  it  is  that  it  gives  promise  of  offering  some  redress  to  one 
industrial  class,  namely  sellers,  particularly  sellers  who  are  manu- 
facturers. 

Prior  to  their  entry  into  open  price  work,  manufacturers  were 
no  doubt  the  chief  sufferers  from  the  ills  attending  the  regime 
of  competition  conducted  in  ignorance  and  secrecy.  Buyers  were 
at  least  always  able  to  ascertain  with  some  degree  of  accuracy 
the  character  of  current  market  rates  by  calling  for  numerous 
competitive  bids,  but  manufacturers  had  to  rely  for  their  infor- 
mation either  upon  the  statements  of  buyers  or  upon  those  of 

'Mr.  Eddy  uses  the  term  "competitors"  in  its  commonly  accepted  meaning  of 
denoting  sellers  in  competition  with  each  other  for  the  custom  of  the  buyers. 


198  OPEN  PRICE  ASSOCIATIONS  [362 

salesmen.  The  small  manufacturer  without  a  sales  organization 
had  practically  no  other  source  of  information  than  that  coming 
from  the  buyer.  Both  buyer  and  salesman  have  been  interested 
in  deceiving  the  manufacturer  into  thinking  that  going  rates  are 
lower  than  they  really  are.  The  buyer  has  practised  deception 
in  order  to  "beat  down"  prices;  the  salesman  in  order  to  excuse 
his  action  in  making  easy  sales  at  abnormally  low  prices,  his 
false  plea  being  that  certain  alleged  low  quotations  made  by 
competitors  have  had  to  be  met. 

Having  once  associated  themselves  in  open  price  work,  how- 
ever, the  mastery  of  the  competitive  situation  falls  to  the  sell- 
ers— at  least  in  theory,  for  they  have  now  come  into  possession 
of  market  knowledge  which  is  superior  to  that  of  buyers.  In 
practise,  however,  sellers  thus  organized  find  it  difficult,  if  not 
impossible,  to  make  capital  out  of  their  superior  educational 
facilities,  either  because  the  open  price  system  fails  to  function 
properly,  or  because  members  do  not  represent  a  sufficient  per- 
centage of  the  productive  capacity  of  the  industry  to  give  them 
a  controlling  influence  over  price  matters,  or  because  potential 
and  indirect  competition  keep  prices  close  to  pre-existing  levels. 
How  powerful  these  deterring  influences  are  can  only  be  deter- 
mined from  observation  and  experience  carried  on  over  a  period 
of  years.  The  instances  on  record  where  individual  members 
have  succeeded  in  bettering  their  prices,  seem  confined  to  small 
producers,  who,  prior  to  their  entry  into  open  price  work,  were 
unable  to  exact  the  best  market  prices  but  who  subsequently 
succeeded  in  utilizing  open  price  information  to  obtain  for  them- 
selves better  prices. 

It  is  not  probable  that  the  public  welfare  is  prejudiced  by  the 
fact  that  small  producers,  by  availing  themselves  of  market 
information  put  at  their  disposal,  are  enabled  to  exact  rates  more 
nearly  approximating  those  recognized  as  the  current  rates.  Ia 
fact,  it  is  probably  nearer  the  truth  to  assert  that  the  public 
welfare  is  promoted  thereby.  The  public  suffers  a  large  loss 
of  specialized  capital  and  labor  skill  every  year  by  reason  of  the 
numerous  bankruptcies  that  occur  among  small  producers.  These 
bankruptcies  are  not  always  brought  on  by  the  inability  to  pro- 
duce as  efficiently  as  larger  competitors,  but,  as  often  as  not, 


INFLUENCE  ON  PUBLIC  WELFARE  199 

they  are  the  consequence  of  a  failure  to  properly  gauge  market 
conditions.  With  adequate  market  information  at  their  disposal 
they  are  less  apt  to  make  the  mistakes  which  so  often  lead  to 
bankruptcy.  Another  important  consideration  is  that,  in  so  far 
as  prices  of  small  producers  are  placed  on  a  more  even  keel  with 
those  of  the  larger  competitors,  the  danger  of  monopoly  ensuing 
in  consequence  of  ruinous  price  cutting  is  materially  decreased. 
Those  who  are  in  favor  of  the  survival  of  the  small  business 
institution  may  find  considerable  comfort  in  the  thought  that 
open  price  work  makes  the  small  business  man  better  able  to 
hold  his  own  with  his  larger  and  more  powerful  competitors. 

The  chief  danger  of  jeopardizing  the  public  interest  comes 
when  an  open  price  association  enjoys  a  controlling  influence 
in  the  industry  with  which  it  is  identified.  It  is  under  such  a 
circumstance  that  attempts  to  enhance  prices  directly,  or  indi- 
rectly through  curtailment  of  production,  carry  the  best  prospects 
for  successful  accomplishment.  Success  or  failure  in  enhancing 
prices  probably  would  depend  mainly  upon  the  effectiveness  of 
the  restraining  influence  exerted  by  potential  and  indirect  com- 
petition. It  is  conceivable  that  a  considerable  margin  of  in- 
creased profit  might  be  secured,  if  not  permanently,  at  least  for 
extended  periods  of  time,  before  new  capital  would  be  attracted 
into  the  industry  or  a  resort  made  to  the  use  of  substitutes. 
These  enhanced  prices  might  ensue  solely  as  the  result  of  the 
advantage  enjoyed  by  members  over  buyers  in  the  way  of  supe- 
rior knowledge  of  market  conditions,  no  resort  to  collusion  being 
made;  however,  the  temptation  to  pool  knowledge  in  such  a  way 
as  to  accomplish  price  enhancement  by  means  of  collusion  would 
be  exceedingly  strong,  as  is  admitted  by  the  staunchest  defend- 
ers of  the  open  price  plan,  the  inducement  being  especially  great 
by  reason  of  the  fact  that  members  would  be  aware  of  their 
controlling  influence  in  the  industry.  Collusion  might  be  achieved 
in  a  manner  so  subtle  as  to  defy  all  detection  by  officers  of  the  law. 

As  far  as  the  writer's  observation  goes,  no  open  price  associa- 
tion has  as  yet  succeeded  in  obtaining  a  controlling  influence  in 
any  of  the  important  industries.  A  few  instances  are  known 
where  small  industries  are  completely  within  the  control  of  an 


2OO  OPEN  PRICE  ASSOCIATIONS  [364 

open  price  association,  but  it  is  thought  that  no  large  industry 
is  sufficiently  dominated  by  any  open  price  association  to  give 
one  ground  for  believing  that  the  course  of  prices  for  the  indus- 
try as  a  whole  has  been  materially  affected  by  its  operations.  The 
obstacles  that  militate  against  the  rapid  growth  of  membership 
in  these  associations  are  sufficiently  serious  to  make  one  wonder 
if  they  ever  can  succeed  in  gaining  a  controlling  influence  in  the 
larger  industries.  The  open  price  movement,  however,  is  very 
young.  The  future  may  tell  a  different  story. 

To  summarize,  then,  the  leading  thoughts  which  suggest  them- 
selves with  reference  to  the  value  of  open  price  associations  as 
viewed  from  the  standpoint  of  public  welfare,  we  find,  first,  that 
they  give  no  promise  of  solving  the  problem  of  achieving  true 
competition,  as  is  maintained  by  Mr.  Eddy  and  his  followers; 
second,  that  they  do  offer  some  promise  of  redress  from  the  evils 
attendant  upon  the  old  competitive  regime  of  secrecy  and  com- 
petition, not  for  buyers,  but  for  sellers,  particularly  those  of 
small  productive  capacity;  that  in  the  event  of  a  future  increase 
in  control  and  influence  over  industry,  they  may  wield  a  power 
detrimental  to  the  public  interest. 

Assuming  that  future  observation  and  experience  verify  these 
conclusions,  what  deductions  may  be  made  regarding  the  proper 
destiny  of  open  price  work?  One  consideration  is  paramount: 
irrespective  of  whether  it  is  found  feasible  or  not  to  permit  asso- 
ciations of  business  men  to  engage  in  open  price  work,  the  work 
itself  must  not  be  abandoned.  The.  information  side  of  business 
is  rapidly  becoming  an  exact  science.  The  trend  of  the  times  is 
in  the  direction  of  greater  insistence  upon  the  accumulation  of 
precise  and  accurate  business  information  of  a  statistical  char- 
acter. A  mere  statement  that  business  is  good  or  business  is 
dull  will  not  for  long  be  accepted  as  a  sufficient  criterion  of  the 
trend  of  business  conditions.  Manufacturers  as  a  class  will  not 
be  long  in  insisting  on  having  at  their  finger  tips  actual  figures 
for  the  industry  showing,  for  instance,  the  increase  or  decrease 
in  production  from  a  known  standard;  the  increase  or  decrease  in 
unfilled  orders,  and  the  increase  in  raw  materials  and  finished 
product  on  hand — all  this  in  order  that  they  may  have  an  index 
to  the  volume  of  trade.  Among  other  things,  manufacturers  are 


365]  INFLUENCE  ON  PUBLIC  WELFARE  2OI 

coming  to  learn  that  in  order  to  avoid  to  the  greatest  practicable 
extent  the  periodic  disturbances  to  production  that  come  from 
unrestrained  overexpansion,  now  recognized  to  be  largely  due 
to  a  general  lack  of  broad  insight  into  business  conditions,  they 
must  possess  themselves  of  information  of  the  character  ex- 
pounded above. 

It  behooves  the  Government  to  come  to  a  full  recognition  of 
the  fact  that  it  is  a  mistaken  public  policy,  and  is  also  utterly 
futile,  for  it  to  attempt  the  task  of  forcing  business  men  to  com- 
pete in  ignorance  and  secrecy.  Our  hope  for  improving  com- 
petitive conditions  lies,  not  in  forcing  business  men  to  conduct 
their  businesses  like  moles,  but  in  giving  them  all  the  enlight- 
enment possible  as  to  the  factors  that  influence  the  competitive 
situation.  The  open  price  movement  has  sprung  into  existence 
in  response  to  the  growing  desire  of  business  men  to  govern  their 
business  operations  intelligently  in  the  light  of  existing  business 
conditions.  They  have  tried  to  do  for  themselves  what  the  Gov- 
ernment does  in  a  small  way  for  the  farmers.  At  great  expense 
to  itself,  the  Government  issues  crop  reports  to  the  farmers  for 
the  express  purpose  of  enabling  them  to  market  their  products 
more  intelligently.  Since  it  is  clear  that  an  approach  to  more 
wholesome  competitive  conditions  must  come  through  the  wider 
dissemination  of  more  exact  knowledge  of  the  factors  influencing 
business  conditions,  it  seems  ill-advised  and  even  unfair  to  force 
associations  whose  efforts  are  dedicated  to  these  purposes  to  cease 
their  activity  on  the  ground  that  prices  happen  to  be  increased 
thereby — unless  the  Government  is  prepared  to  assume  the  re- 
sponsibility for  seeing  that  open  price  work  of  equally  efficient 
character  is  carried  on  by  some  other  less  objectionable  agency, 
either  private  or  public.  To  put  a  ban  on  open  price  activities 
without  offering  something  in  their  stead  would  be  to  discourage 
a  valuable  incentive  directed  toward  the  achievement  of  greater 
efficiency  in  bargaining.  The  greater  the  development  of  effi- 
ciency in  bargaining,  the  nearer  is  the  approach  of  actual  com- 
petitive conditions  to  ideal  competitive  conditions. 

If  future  observation  and  experience  point  to  the  conclusion 
that  members  of  open  price  associations  are  securing  too  liberal 
returns  on  their  investment  in  business  education,  at  the  expense 


2O2  OPEN  PRICE  ASSOCIATIONS  [366 

of  buyers'  ignorance,  the  proper  solution  lies,  not  necessarily  in 
prohibiting  them  from  engaging  in  open  price  activity,  but  in 
widening  the  sphere  of  open  price  influence  so  that  not  only 
members  of  open  price  associations  may  receive  the  benefit  of 
it  but  also  all  others  who  have  an  interest  in  the  competi- 
tive situation.  With  all  bargainers  equally  well  equipped  with 
scientific  business  information,  no  group  of  men  associated  for 
the  purpose  of  disseminating  information  of  this  character 
among  its  membership  would  be  in  a  position  of  dominance  in 
any  industry,  for  they  no  longer  would  possess  a  monopoly  of 
such  information.  If  the  necessary  machinery  could  be  con- 
structed for  putting  both  buyers  and  sellers  in  every  industry 
in  possession  of  all  information  necessary  to  make  them  intelli- 
gent bargainers,  one  of  the  most  serious  causes  of  friction  of  the 
many  that  now  prevent  actual  competitive  conditions  from  ap- 
proaching ideal  competitive  conditions  will  have  been  eliminated. 
Only  then  will  the  much  maligned  law  of  supply  and  demand 
be  afforded  a  sufficient  opportunity  to  demonstrate  its  worth 
before  the  world. 

It  is  not  within  the  scope  of  this  dissertation  to  consider  the 
practical  aspects  involved  in  extending  the  sphere  of  open  price 
activity  beyond  its  present  confines.  No  doubt  a  proper  solution 
of  the  problem  of  extending  open  price  activity  into  every  indus- 
try in  such  a  way  that  all  who  are  interested  may  profit  thereby 
can  best  be  achieved  by  a  painstaking  and  exhaustive  investiga- 
tion conducted  with  facilities  for  research  such  as  no  one  indi- 
vidual is  likely  to  possess.  Only  the  Government,  it  is  thought, 
has  command  of  the  facilities  necessary  to  make  a  successful 
investigation.  The  chief  question  on  which  such  an  investigation 
must  seek  to  come  to  an  intelligent  decision  is  whether  the  func- 
tion of  collecting,  compiling,  and  disseminating  business  statis- 
tics should  be  left  in  the  hands  of  associations  of  business  men 
in  each  of  the  industries,  without,  however,  confining  membership 
to  one  industrial  class  as  is  now  the  case,  but  extending  it  to 
include  the  class  of  purchasers;  or  whether  this  function  should 
be  turned  over  to  the  Government  to  administer. 

The  burden  of  the  argument  in  this  study  appears  to  uphold 
the  latter  procedure  as  offering  the  greater  assurance  for  success, 


367]  INFLUENCE  ON   PUBLIC   WELFARE  2O3 

at  least  as  far  as  conducting  open  price  work  in  the  larger  indus- 
tries where  buyers  and  sellers  are  relatively  numerous  is  con- 
cerned. Even  making  allowance  for  the  fact  that  the  open  price 
movement  is  young,  the  results  achieved  in  one  of  the  largest 
industries,  the  lumber  industry,  do  not  hold  out  much  promise 
for  the  future.  We  have  seen  that  even  in  the  most  successful 
association  of  the  many  in  the  lumber  industry  doing  open  price 
work,  namely  the  American  Hardwood  Manufacturers'  Associa- 
tion, it  was  found  well  nigh  impossible  to  secure  sufficient  coop- 
eration from  competitors  to  make  the  plan  successful.  Early  in 
1919,  after  an  existence  of  about  two  years  as  a  consolidation 
of  two  associations  which  had  existed  for  several  years  previous, 
the  membership  had  not  yet  reached  the  four  hundred  mark; 
thousands  of  small  mill  owners  were  not  members.  In  1919  the 
membership  controlled  but  twenty-eight  percent  of  the  total 
hardwood  production  of  the  industry.  Membership  was  com- 
prised mainly  of  the  larger  producers.  The  small  mill  owners 
were  the  very  ones  most  in  need  of  business  information,  for  as 
*  rule  they  had  no  sales  organizations,  and  in  their  isolated 
locations,  they  had  poor  means  of  keeping  in  touch  with  the 
market.  Moreover,  even  a  large  percentage  of  those  who  did 
become  members  showed  themselves  very  dilatory  in  furnishing 
the  information  called  for  by  the  manager  of  statistics.  Ob- 
viously, under  these  circumstances,  such  statistics  as  were  re- 
ported by  members  did  not  give  totals  which  could  be  considered 
representative  of  the  hardwood  industry  as  a  whole.  It  is  quite 
conceivable,  not  to  say  probable,  that  an  investigation  into  the 
workings  of  open  price  associations  in  the  other  large  industries 
where  they  are  now  in  operation,  would  reveal  conditions  similar 
to  those  found  in  the  lumber  industry.  The  writer  is  convinced 
that  there  will  always  be  a  large  percentage  of  business  men  in 
every  industry  who,  for  one  reason  or  another,  will  not  partici- 
pate in  open  price  work  conducted  by  a  voluntary  organization. 
In  order  to  obtain  statistics  sufficiently  representative  of  each 
industry  to  be  a  real  index  to  the  trend  of  business  conditions, 
it  would  seem  necessary  to  introduce  an  element  of  compulsion 
into  the  situation,  such  as  only  the  Government  could  success- 
fully bring  to  bear.  Business  men  could  be  required  to  furnish 


2O4  OPEN  PRICE  ASSOCIATIONS  [368 

vital  business  statistics  to  the  Government  much  in  the  same 
manner  that  it  is  made  compulsory  to  furnish  statistics  to  the 
Census  Bureau. 

One  Government  agency  evidently  believes  it  feasible  as  well 
as  needful  to  obtain  accurate  and  precise  data  pertaining  to 
market  conditions  in  each  industry,  for  the  Federal  Reserve 
Board,  working  through  the  Federal  Reserve  Banks,  is  estab- 
lishing a  reporting  system  for  the  purpose  of  obtaining  from 
representative  firms  in  each  of  the  more  important  lines  of  in- 
dustry certain  figures  relating  to  production,  stocks,  unfilled 
orders,  and  the  like.  Its  main  purpose  in  gathering  this  infor- 
mation is  to  use  it  as  a  basis  for  making  a  scientific  study  of 
bank  credit.  However,  as  an  inducement  to  manufacturers  and 
others  to  contribute  information,  those  who  submit  the  required 
reports  will  be  sent  the  figures  that  are  compiled  for  their  par- 
ticular lines.  The  returns  received  for  any  given  line  are  to  be 
compiled  and  published  in  the  form  of  percentages,  giving  con- 
ditions in  the  industries  as  a  whole,  so  as  to  avoid  the  possibility 
of  disclosing  information  relative  to  any  particular  firm,  pre- 
sumably of  a  confidential  nature. 

Obviously  the  scope  of  the  work  of  this  Board  is  limited,  and 
in  consequence  its  effectiveness  is  impaired,  by  reason  of  the  fact 
that  data  are  to  be  obtained  only  from  those  who  volunteer 
their  cooperation..  Probably  there  will  be  a  better  response  to 
the  Board's  appeal  for  cooperation  than  has  been  accorded  to  the 
average  open  price  association,  because  the  Board  carries  the 
expense  associated  with  the  compilation  and  dissemination  of 
statistics,  whereas  open  price  associations  must  require  contribu- 
tors to  bear  this  expense.  But,  as  previously  intimated,  among 
a  large  percentage  of  those  who  actually  become  members  of 
open  price  associations,  thus  indicating  that  they  have  not  de- 
murred at  the  expense  involved,  a  very  serious  laxness  in  report- 
ing has  been  manifested.  The  same  laxness  is  likely  to  be  shown 
by  those  who  report  to  the  Federal  Reserve  Board. 

The  greatest  assurance  of  success  would  seem  to  be  promised 
by  the  establishment  of  one  great  statistical  bureau  for  the  whole 
country  under  the  direction  and  control  of  an  agency  such  as 
the  Department  of  Commerce,  this  agency  to  be  empowered  to 


369]  INFLUENCE  ON  PUBLIC  WELFARE  2O$ 

require  manufacturers  and  others  to  submit  at  stated  periods 
reports  of  prices,  production,  stocks,  costs,  and  the  like,  where- 
upon these  reports  would  be  compiled  in  such  a  way  as  to  reveal 
the  salient  facts  of  competition  without  divulging  figures  of  indi- 
viduals and  then  disseminated  in  published  form  among  those 
interested.  Inasmuch  as  this  government  statistical  bureau 
would  have  no  authority  over  industry  except  to  require  that 
reports  be  submitted  at  stated  intervals,  there  would  be  little 
ground  for  fearing  that  the  establishment  of  such  a  bureau  would 
mean  too  much  Government  in  industry.  Neither  would  the 
stock  objection  raised  against  government  ownership,  to  wit,  that 
government  officials  lack  the  initiative  and  energy  to  successfully 
operate  business  enterprises,  apply  here,  for  the  collection,  com- 
pilation, and  dissemination  of  statistical  data,  when  once  suc- 
cessfully launched  into  operation,  would  require  little  more  than 
the  establishment  of  a  set  routine  of  procedure.  The  system 
established  should  be  such  as  to  insure  promptness  in  the 
issuance  of  reports.  An  open  price  system  utterly  fails  of  its 
"purpose  unless  reports  can  be  issued  with  sufficient  dispatch  to 
enable  recipients  to  use  them  as  indices  of  market  conditions. 

By  way  of  experiment  the  Department  of  Commerce  might 
make  a  beginning  in  a  few  of  the  basic  industries  where  fluctua- 
tions in  market  rates  are  particularly  severe.  Probably  it  would 
be  desirable,  first,  to  make  a  start  in  industries  from  which  the 
Federal  Reserve  Board  is  not  yet  receiving  reports,  thus  avoid- 
ing duplication  of  effort.  Ultimately,  if  the  experiment  of  the 
Department  of  Commerce  should  prove  successful,  the  Federal 
Reserve  Board  would  no  longer  find  it  necessary  to  gather  its 
own  statistics  to  guide  it  in  its  banking  policy,  but  could  utilize 
those  available  in  the  Department  of  Commerce.  Since  it  proba- 
bly would  take  a  long  time  for  the  Government  to  develop  an 
open  price  system  adequate  to  serve  the  needs  of  the  whole  coun- 
try, open  price  associations  might  be  permitted  to  function  until 
such  time  as  the  success  or  failure  of  the  Government  experiment 
shall  have  been  definitely  ascertained.  If  the  results  achieved 
by  the  Government  should  prove  successful,  open  price  associa- 
tions probably  would  not  need  to  be  legislated  out  of  existence; 
they  would  no  doubt  cease  the  open  price  phase  of  their  activi- 


206  OPEN  PRICE  ASSOCIATIONS  [j/O 

ties  of  their  own  accord,  and  in  all  probability  would  confine 
themselves  to  ordinary  trade  association  activities.  Even  if  they 
should  fail  to  abandon  their  open  price  activities,  little  harm 
would  result,  for  they  would  no  longer  possess  a  monopoly  of 
business  information.  In  the  event  that  the  experiment  of  the 
Government  should  turn  out  to  be  a  failure,  the  machinery  devel- 
oped by  open  price  associations  would  be  at  hand  as  a  basis  for 
putting  into  operation  some  plan  looking  toward  an  association 
of  buyers  and  sellers  in  each  industry,  organized  for  the  purpose 
of  gathering,  compiling  and  disseminating  vital  business  statis- 
tics among  themselves. 


APPENDIX 
EXHIBIT   I 

ASSOCIATIONS  REPUTED  TO  BE  DOING  OPEN  PRICE  WORK 

1.  American  Hardwood  Manufacturers'  Association. 

2.  American  Tack  Manufacturers'  Association. 

3.  *Architectural  Iron  and  Bronze  Manufacturers. 

4.  Asbestos  Brake  Lining  Association. 

5.  Asbestos  Paper  Manufacturers'  Association. 

6.  Asbestos  Textile  Manufacturers'  Association. 

7.  Associated  Metal  Lath  Manufacturers. 

8.  Automobile  Accessory  Dealers'  Association. 

9.  *Bar  Iron  Institute,  National. 

10.  Beet  Sugar  Manufacturers'  Association. 

11.  Belt  Buckle  Society. 

12.  Blanket  Association. 

13.  *Bolt,  Nut  and  Rivet  Institute. 

14.  Box  Manufacturers,  National  Association  of. 

15.  Boys'  Blouse  &  Shirt  Manufacturing  Association,  National. 

16.  Brass  Manufacturers,  National  Association  of. 

17.  Brass  and  Copper  Statistical  Exchange. 

1 8.  *Bridge  Builders'  and  Structural  Society. 

19.  Broom  Handle  Manufacturers'  Association. 

20.  Builders'  Supply  Association,  National. 

21.  Calfornia  White  Sugar  Pine  Manufacturers'  Association. 

22.  Canadian  Pulp  &  Paper  Association. 

23.  Cash  Check  Manufacturers'  Association. 

24.  Chair  Manufacturers,  National  Association  of. 

25.  Chicago  Retail  Lumber  Dealers'  Association. 

26.  Coal  Association,  National. 

27.  *Cold  Roll  Strip  Steel  Institute. 

*Wherever  the  asterisk  is  used  it  indicates  that  the  association  thus  designated 
was  organized  by  Arthur  J.  Eddy,  the  founder  of  the  open  price  movement. 


207 


2O8  OPEN  PRICE  ASSOCIATIONS  [372 

\ 

28.  Cordage  Institute. 

29.  Cotton  Textile  Association. 

30.  Cotton  Thread  Manufacturers'  Exchange. 

31.  Cut  Sole  Manufacturers'  Association. 

32.  Drill  and  Reamer  Society. 

33.  Duck  Association. 

34.  *Eastern  Bar  Iron  Society. 

35.  Eastern  Shook  and  Wooden  Box  Manufacturers'  Association. 

36.  Electrical  Contractors'  Exchange. 

37.  Electrical  Supply  Jobbers'  Association. 

38.  Electric  Wire  Manufacturers'  Association. 

39.  *Explosives,  Institute  of  Makers  of. 

40.  Fine  Cotton  Goods  Exchange. 

41.  *Finishers  of  Cotton  Fabrics,  National  Association  of. 

42.  Gas  Appliance  Manufacturers'  National  Exchange. 

43.  Gingham  Association. 

44.  Gold  Filled  Chain  Manufacturers'  Exchange. 

45.  Hack  Saw  Manufacturers'  Association. 

46.  Hard  Yarn  Spinners'  Association. 

47.  *Hollow  Metal  Door  Institute. 

48.  *Hoop  Band  Strip  Steel  Association. 

49.  Indiana  Millers'  Association. 

50.  institute  of  Electrical  Contractors. 

51.  *Institute  of  Lighting  Fixture  Manufacturers. 

52.  Institute  of  Paper  Package  Manufacturers. 

53.  *Institute  of  Tool  Manufacturers. 

54.  Knife  Information  Bureau. 

55.  Knit  Goods  Manufacturers  of  America. 

56.  Lamp  Standardization  Exchange. 

57.  Lead  Institute. 

58.  Leather  Belting  Exchange. 

59.  Lime  Manufacturers,  National  Association  of. 

60.  Linseed  Oil  Institute,  Armstrong  Bureau  of  Related 

Industries. 

61.  Lithographers'  Cooperative  Association. 

62.  Lithophone  Institute. 

*Wherever  the  asterisk  is  used  it  indicates  that  the  association  thus  designated 
was  organized  by  Arthur  J.  Eddy,  founder  of  the  open  price  movement. 


373]  APPENDIX  2O9 

63.  Lumbermen's  Statistical  Bureau. 

64.  *Manganese  Steel  Founders'  Society. 

65.  *Manganese  Track  Society. 

66.  Master  Dyers'  Exchange  of  New  England. 

67.  Men's  Belt  Exchange. 

68.  Meter  Manufacturers'  Exchange. 

69.  Michigan  Hardwood  Manufacturers'  Association. 

70.  Michigan  State  Millers'  Association. 

71.  Mid-West  Credit  and  Statistical  Bureau  (Cement). 

72.  Millers'  Exchange,  Southwest. 

73.  Northern  Hemlock  &  Hardwood  Manufacturers'  Association. 

74.  Ohio  Millers'  State  Association. 

75.  Optical  Manufacturers'  Association. 

76.  Padlock  Manufacturers'  Bureau. 

77.  Pickle  Manufacturers'  Association. 

78.  Piano  Bench  &  Stool  Manufacturers,  National  Association  of. 

79.  Pipe  Fittings  and  Valve  Exchange. 

80.  Pressed  Metal  Association. 

81.  Pressed  Steel  Association. 

82.  Range  Boiler  Exchange. 

83.  Rigid  Conduit  Manufacturers'  Association. 

84.  *Ring  Travellers'  Society. 

85.  *Rolling  Steel  Door  Society. 

86.  *Roofing  Manufacturers'  Association. 

87.  Sales  Book  Manufacturers'  Association. 

88.  Salt  Producers'  Association. 

89.  Sewer  Pipe  Association. 

90.  Sheet  and  Tin  Plate  Manufacturers'  National  Association. 

91.  Shoe  String  Association. 

92.  Slack  Cooperage  Industrial  Bureau. 

93.  Society  of  Manufacturing  Confectioners. 

94.  South  Dakota  and  Southwestern  Minnesota  Millers' 

Association. 

95.  Southeastern  Millers'  Association. 

96.  Southern  Illinois  Millers'  Association. 

97.  Southern  Statistical  Bureau  (Cement). 

•Wherever  the  asterisk  is  used  it  indicates  that  the  association  thus  designated 

was  organized  by  Arthur  J.  Eddy,  the  founder  of  the  open  price  movement. 


2IO  OPEN  PRICE  ASSOCIATIONS  [374 

98.  Stationers'  and  Manufacturers'  National  Association. 

99.  Steel  Barrel  Manufacturers'  Association. 

100.  *Steel  Founders'  Society  of  America. 

101.  Steel  Furniture  Manufacturers,  National  Association  of. 

102.  Steel  Locker  &  Shelving  Manufacturers'  Exchange. 

103.  Tanners,  National  Association  of. 

104.  Tap  &  Dye  Institute. 

105.  *Tool  Steel  Society. 

106.  Tubular  Plumbing  Goods  Exchange. 

107.  The  United  States  Potash  Producers'  Association. 

108.  Waxed  Paper  Manufacturers'  Association. 

109.  Webbing  Products  Manufacturers'  Exchange. 
no.  West  Coast  Lumbermen's  Association. 

in.  Western  Paving  Brick  Association. 

112.  Western  Petroleum  Refiners'  Association. 

113.  Western  Pine  Manufacturers'  Association. 

114.  Western  Red  Cedarmen's  Association. 

115.  *Window  Shade  Manufacturers. 

116.  *Wire  Fence  Manufacturers'  Association. 

117.  Woolen  Goods  Exchange. 

*Wherever  the  asterisk  is  used  it  indicates  that  the  association  thus  designated 
was  organized  by  Arthur  J.  Eddy,  the  founder  of  the  open  price  movement. 


375]  APPENDIX  211 

EXHIBIT   II 

MINUTES  OF  THE  MEETING  OF  THE  MEMBERS  OF  THE  OPEN  COM- 
PETITION PLAN  OF  THE  AMERICAN  HARDWOOD  MANUFACTUR- 
ERS' ASSOCIATION,  HELD  AT  THE  GRUNEWALD  HOTEL,  NEW 
ORLEANS,  LA.,  FEBRUARY  24™,  1919. 

Mr.  F.  L.  Adams  acted  as  Chairman,  in  the  absence  of  Mr. 
J.  B.  Robinson. 

The  composite  market  report  was  distributed,  and  a  discussion 
of  market  conditions  followed. 

Mr.  Sparks  said  that  he  found  the  market  in  better  shape 
than  it  was  thirty  days  ago. 

Mr.  Ryan  said  that  he  believed  the  Southern  Manufacturers 
were  light  on  stocks.  That  he  had  taken  up  with  the  U.  S. 
Bureau  at  Houston  the  question  of  furnishing  labor.  The  reply 
that  he  received  indicated  that  there  was  plenty  of  labor.  They 
failed  to  furnish  any,  however,  and  upon  writing  them  they  again 
replied  that  there  was  plenty  of  labor,  but  that  it  would  not 
leave  the  cities.  Believed  that  labor  conditions  were  getting  to 
be  a  serious  problem. 

Mr.  Deutch  said  he  found  many  wholesalers  buying  up  stocks 
with  the  view  of  taking  advantage  of  the  better  prices  bound 
to  come,  and  because  they  expect  stocks  to  be  hard  to  get  in  the 
near  future.  When  the  ocean  rates  become  stable  there  will  be 
a  stampede  of  buying  for  the  foreign  market,  as  Europe  was  in 
need  of  large  stocks,  and  everything  that  is  dry  will  be  moved. 
He  believed  that  when  this  occurred  prices  would  be  better  than 
before. 

Mr.  Brewer  stated  that  it  looked  as  if  the  wholesalers  had 
taken  on  a  lot  of  business  at  any  old  price  and  cleaned  up  the 
small  manufacturers  of  their  stocks.  He  had  found  his  inquiries 
to  have  increased  heavily  during  the  past  week. 

Mr.  Bohlssen  said  he  found  that  the  Texas  box  manufacturers 
were  buying  heavily  and  offering  $20.00  at  the  mill. 

Mr.  Smith  said  that  it  looked  as  if  No.  3,  Oak  was  going  to  be 
a  bad  seller. 

Mr.  Cleveland,  who  had  just  made  a  swing  around  the  buying 
circle,  said  that  he  found  manufacturers  well  stocked  and  most 


212  OPEN  PRICE  ASSOCIATIONS  [376 

of  them  hampered  because  of  the  failure  of  the  Government  to 
effect  settlements  on  contracts.  He  looked  for  a  heavy  demand 
for  No.  2  Gum.  Stated  he  was  holding  Sap  Gum  for  $37.00  at 
mill. 

Mr.  Adams  stated  that  his  mill  had  been  shut  down  since  last 
November  because  of  weather  conditions,  and  had  a  little  over 
two  million  feet  of  stocks  on  hand.  He  said  that  Louisiana  had 
experienced  a  thirty  inch  rainfall  in  ninety  days,  and  of  course 
there  was  no  production. 

Mr.  L.  C.  Cornelius,  of  St.  Louis,  who  was  present,  said  he 
found  furniture  factories  buying  better. "  He  was  asking  $50.00 
for  his  Ash,  but  manufacturers  were  quoting  $45.00  to  $47.00. 
Believed  there  would  be  a  better  demand  for  Red  Gum.  The 
demand  for  box  material  was  off.  This  was  due  to  packers' 
production  being  reduced  as  a  result  of  the  Armistice.  Looked 
for  an  average  price  on  No.  I  and  No.  2  Gum,  and  better  prices 
on  F.  a.s.  Sap.  Ash  stocks  very  low. 

Mr.  Stanford  said  he  had  more  timber  orders  on  hand  at  sat- 
isfactory prices  than  his  mill  could  produce. 

Mr.  Patterson  said  that  his  commissary  man  reported  prices 
coming  down  but  the  consumer  could  not  find  the  reduction 
when  he  paid  his  monthly  bills.  Said  that  returned  colored  sol- 
diers were  bent  more  on  trouble  than  work. 

Mr.  Geissler  stated  that  he  believed  the  Association  method 
of  advertising  might  better  be  carried  out  by  a  campaign  to  edu- 
cate the  public  to  the  fact  that  lumber  was  the  cheapest  of  all 
building  materials  and  that  it  had  at  no  time  advanced  as  had 
other  commodities.  He  did  not  believe  that  the  public  needed 
education  as  to  the  uses  of  hardwoods,  but  that  they  did  need 
to  be  educated  to  the  fact  that  hardwood  prices  had  advanced 
hardly  any  beyond  the  cost  of  production. 

Mr.  Geissler  stated  that  he  did  not  believe  that  those  present 
realized  the  exaggerated  idea  of  the  public  as  to  the  prices  that 
manufacturers  were  obtaining  and  the  profits  they  were  making. 
Believed  if  public  were  educated  to  the  fact  that  mills  were  com- 
pelled to  close  down  because  they  could  make  no  profit  on  the 
present  price  basis  it  would  be  a  good  thing. 

Mr.  Gadd  then  related  the  movement  on  foot  at  Washington 


377]  APPENDIX  213 

to  plan  the  return  of  industry  to  normal  conditions,  and    read 
statements  by  Secretary  Redfield  relating  thereto. 

Mr.  Ryan  thought  the  Government  ought  to  cut  the  strings 
and  get  out  of  the  price  fixing  business. 

There  followed  a  discussion  as  to  the  value  of  Oak  and  Gum 
Stumpage. 

There  being  no  further  business,  the  meeting  adjourned. 

Secretary.  Chairman. 


214  OPEN  PRICE  ASSOCIATIONS  [378 

EXHIBIT  III 
CONSTITUTION 

ARTICLE  I 

NAME 
This  organization  shall  be  known  as    *    *    *    *l 

ARTICLE  II 

OBJECTS 
The  purpose  of  this  Institute  shall  be: 

1.  The  stimulation  of  acquaintance,  confidence   and  cordial 
relations  amongst  its  members  and  throughout  the  trade. 

2.  The  improvement  of  the     *****     manufacturing 
business   by  striving  toward  the  correction  by  all  proper   and 
legitimate  means,  of  unintelligences,  faulty  standardization  and 
abuses  in  the  trade,  and  the  promotion  of  publicity  in  the  trans- 
action of  business. 

3.  The  development  of  methods  for  the  removal  of  false  im- 
pressions and  in  their  place  to  disseminate  correct  information 
and  to  collect   and  distribute   accurate   statistics    regarding  the 
entire  industry. 

4.  To  devise  a  scientific  system  of  cost  accounting,  suitable 
for  the  industry,  to  the  end  that  each  manufacturer  engaged  in 
the  industry  may  accurately  know  the  cost  of  his  output.     In 
this  connection  it  is  not  the  purpose  of  the  Institute  to  impose 
upon  any  member  any  cost  items  or  to  use,  in  any  manner,  the 
cost  system  as  a  means  for  controlling  prices. 

5.  The  encouragement  of  the  true  spirit  of  "cooperative  com- 
petition" by  bringing  out  into  the  open,  all  competitive  conditions 
and  introducing  the  open  price  policy. 

6.  To  cooperate  along  the  lines  of  metallurgical  research  in 
the  securing  of  better  steels  for  use  in  manufacturing  ***** 
so  that  the  result  would  be  to  raise  the  standard  of  quality  to 
its  highest  point  of  efficiency,  thereby  making  a  great  saving  to 
the  consumer. 

Further  to  cooperate  in  the  standardization  of  sizes,  dimen- 
sions and  tolerances  of  the  product  manufactured  by  the  Institute. 

'The  writer  has  been  requested  not  to  reveal  the  identity  of  this  association. 


379]  APPENDIX  215 

To  avoid  the  use  of  the  Institute  as  a  price  fixing  or  trade 
controlling  device; — to  this  end,  no  information  will  be  received, 
distributed  or  exchanged  relative  to  actual  selling  prices  previous 
to  the  making  of  an  actual  and  bona  fide  quotation  or  bid,  or 
effecting  an  actual  sale,— or  relative  to  any  customers  with  whom 
or  territory  in  which  the  members  intend  to  do  business,  and  no 
member  shall  enter  into  any  agreement,  direct  or  indirect,  with 
any  other  member  that  has  to  do  with  any  prohibited  practises, 
or  any  other  arrangement  that  will  interfere  with  free,  open  and 
active  competition  among  members  or  with  any  other  person. 
All  information  received  and  distributed  shall  be  absolutely 
accurate. 

8.  To  cooperate  with  the  Federal  Trade  Commission  to  expose 
and  suppress  unfair  methods  of  competition. 

9.  To  eliminate  secrecy  either  as  to  the  meetings  or  operations 
of  the  Institute.    All  its  proceedings  shall  be  reduced  to  writing 
and  carefully  preserved. 

ARTICLE  III 
MEMBERSHIP 

Section  I.  Any  individual,  firm  or  corporation,  engaged  in  the 
commercial  manufacture  and  sale  of  *******  shall  be  eligible 
for  membership  in  the  Institute. 

Section  2.  All  who  have  become  members  before  July  ist, 
1920,  shall  be  charter  members.  Thereafter  applicants  for  mem- 
bership will  require  for  election  the  affirmative  vote  of  three- 
fourths  of  the  members  present  at  any  regular  meeting. 

Section  3.  All  memberships  are  for  full  periods  of  a  year  and 
are  automatically  renewed  from  year  to  year  unless  thirty  days 
prior  to  the  termination  of  a  full  year  of  membership  a  member 
shall  give  notice  of  his  resignation  in  writing.  A  member  may 
resign  from  the  Institute  at  any  time  during  his  year  of  mem- 
bership on  thirty  days'  notice  of  his  desire  so  to  do,  but  no  resigna- 
tion shall  be  accepted  until  the  members  resigning  shall  have 
completed  the  payment  of  all  dues  for  his  then  full  current  year. 

ARTICLE  IV 

OFFICERS 

Section  i.  The  officers  of  the  Institute  shall  be  a  President, 
a  Vice  President  and  a  Secretary-Treasurer. 


2l6  OPEN  PRICE  ASSOCIATIONS  [380 

Section  2.  All  officers  shall  be  elected  at  the  annual  meeting 
and  shall  hold  office  for  one  year  or  until  their  successors  have 
been  duly  elected  . 

Section  3.  The  Executive  Committee  shall  consist  of  the  Presi- 
dent, Vice  President  and  three  other  members  to  be  elected  at 
the  annual  meeting. 

ARTICLE  V 
MEETINGS 

Section  I.  The  Institute  shall  hold  its  regular  annual  meetings 
on  the  same  day  as  its  regular  monthly  meeting  in  the  month  of 
April  of  each  year;  the  first  of  such  annual  meetings  to  be  held 
the  year  next  following  the  meeting  for  organization  of  the  In- 
stitute. The  annual  meeting  shall  be  held  at  such  place  as  shall 
be  determined  by  vote  of  the  members. 

Section  2.  The  regular  monthly  meeting  of  the  Institute  shall 
be  held  at  such  convenient  hour  of  the  Thursday  immediately 
preceding  the  second  Friday,  of  each  month  and  at  such  place 
as  shall  be  designated  by  the  Executive  Committee.  Special 
meetings  of  the  Institute  may  be  called  by  the  President,  or  on 
request  of  three  members  to  the  President,  but  such  call  shall 
state  the  purpose  of  the  meeting  and  no  other  business  shall  be 
transacted  at  the  special  meeting  except  as  is  announced  in  the 
notice.  Notices  of  all  meetings  of  the  Institute  shall  be  mailed 
to  members  ten  (10)  days  before  the  day  of  meeting. 

Section  3.  A  quorum  of  all  regular  and  special  meetings  of 
the  Institute  shall  consist  of  a  majority  of  its  members. 

ARTICLE  VI 
MEMBERSHIP  FEES  AND  DUES 

There  shall  be  two  distinct  funds,  (a)  Membership  Fund, 
(b)  Principal  Fund. 

The  Membership  Fund  shall  be  provided  by  the  payment  of 
a  membership  fee  of  One  Hundred  Dollars  by  each  member, 
and  this  fund  shall  be  maintained  thereafter  by  special,  equal 
assessments,  when  necessary,  such  special  assessments  to  be 
ordered  at  any  regular  meeting  of  the  Institute  by  a  majority 
vote  of  all  members  present. 

The  Membership   Fund   shall  be   within   the  custody   of  the 


381]  APPENDIX  217 

Secretary-Treasurer,  but  shall  only  be  used  on  warrants  drawn 
against  this  Membership  Fund  by  the  Secretary-Treasurer  and 
countersigned  by  the  President  to  cover  the  extraordinary  ex- 
penses of  the  Institute  such  as  luncheons  or  other  entertainment 
expense,  traveling  expenses  of  the  Secretary-Treasurer,  postage 
and  printing  expense  on  all  materials  mailed  to  the  general  public 
or  the  trade,  other  than  members,  upon  the  instructions  of  the 
Institute,  and  all  printed  matter,  etc.,  furnished  to  the  members 
for  their  convenience  in  reporting,  etc.  The  expenditures  under 
this  fund  shall  be  directly  and  entirely  within  the  control  of  the 
Institute  or  its  Executive  Committee. 

The  Secretary-Treasurer  shall  keep  an  accurate  record  of  all 
items  of  disbursements  of  the  Membership  Fund,  and  be  prepared 
at  all  times  to  exhibit  vouchers  for  such  disbursements. 

The  Principal  Fund  shall  be  provided  through  the  payment  by 
each  member  of  monthly  dues,  payable  on  the  first  day  of  each 
month.  The  amount  of  dues  to  be  paid  by  each  member  shall 
be  in  approximate  relation  to  his  annual  volume  of  sales;  and 
be  pro  rated  on  a  basis  fixed  by  the  Executive  Committee. 

The  Principal  Fund  shall  be  paid  directly  by  the  members 
to  the  Secretary-Treasurer,  and  such  payments  shall  constitute 
the  entire  Principal  Fund,  and  shall  be  used  by  the  Secretary- 
Treasurer  to  cover  all  expenses  of  the  maintenance  of  the  Institute, 
such  as  clerk  hire,  office  rent,  office  equipment,  telephone  and 
telegraph  charges,  printing,  postage,  expressage  and  the  compen- 
sation of  the  Secretary-Treasurer;  in  fact,  every  expense  inci- 
dental to  the  conduct  of  the  Institute,  except  such  items  as  are 
specifically  covered  by  the  Membership  Fund. 

ARTICLE  VII 

AMENDMENTS  TO  THE  CONSTITUTION 

These  Articles  may  be  amended  by  a  two-thirds  vote  of  the 
members  present  at  any  regular  or  special  meeting  provided 
notice  of  such  amendment  shall  be  forwarded  to  each  member 
ten  (10)  days  in  advance. 


BY-LAWS 
Section    i.     PRESIDENT  AND  VICE   PRESIDENT — The   President 


2l8  OPEN  PRICE  ASSOCIATIONS  [382 

shall  perform  the  usual  duties  of  the  chief  executive  officer  of 
such  organization,  and,  in  the  event  of  his  absence,  the  Vice 
President  shall  act  in  his  stead. 

Section  2.  SECRETARY-TREASURER — The  Secretary-Treasurer 
shall  be  the  only  paid  officer  and  shall  be  from  outside  of  the 
trade. 

It  shall  be  the  duty  of  the  Secretary-Treasurer: 

(a)  To  take  care  of  the  finances  and  funds  of  the  Institute 
in  accordance  with  the  provisions  hereinafter  set  forth. 

(b)  To  provide  and  operate  a  regulated  central  office  for  the 
proper  care  of  the  business  of  the  Institute. 

(c)  To  keep  in  close  personal  touch    with    all    members    at 
meetings  and  by  personal  visits. 

(d)  To  conduct  the  correspondence  between  the  Institute  and 
its  members  and  serve  as  a  bond  between  the  concerns  in  the 
trade,  whether  members  of  the  Institute  or  not. 

(e)  To  maintain  and  increase  the  membership  of  the  Institute. 

(f)  To  serve  as  a  clearing  house  between  the  members  for 
the  exchange  of  credit  information  with  the  object  of  reducing 
losses. 

(g)  To  attend  all  meetings  of  the  Institute  and  keep  accurate 
stenographic  records  thereof. 

(h)  Under  the  instructions  of  the  Executive  Committee  to 
develop  and  distribute  information  and  statistics  of  educational 
value  relating  to  costs  of  production,  selling  markets,  trade  and 
labor  conditions. 

Section  3.  EXECUTIVE  COMMITTEE — The  Executive  Committee 
shall  manage  all  of  the  affairs  of  the  Institute  and  shall  have 
absolute  powers  to  perform  any  and  all  acts  in  furtherance  of 
the  purposes  of  this  Institute,  as  set  forth  herein.  The  Executive 
Committee  shall  meet  at  the  call  of  the  President  or  at  the  request 
of  any  two  members  on  five  days'  notice,  and  three  of  such  com- 
mittee shall  be  a  quorum. 

Section  4.  VOTING  POWER — At  all  meetings  each  member  shall 
have  but  one  vote,  but  may  be  represented  by  two  or  more 
persons. 

Section  5.  DROPPING  OF  MEMBERS — By  a  two-thirds  vote 
of  the  members  present  at  any  meeting,  a  member,  provided  he 


383]  APPENDIX  219 

has  been  given  a  ten  days'  notice  of  the  proposed  action  and  an 
opportunity  to  be  heard,  may  be  dropped  for  failure  to  pay  any 
assessments,  within  thirty  days  after  same  are  made  or  for  filing 
false  or  misleading  information. 

Section  6.  REGULAR  COMMITTEE — Standing  Committees  may 
be  appointed  by  the  Executive  Committee  subject  to  the  approval 
of  the  Institute. 

Section  7.  ORDER  OF  BUSINESS — The  Order  of  business  shall 
be  as  follows: 

(1)  Calling  of  Roll 

(2)  Reading  of  minutes  of  previous  meeting 

(3)  Election  of  New  Members 

(4)  Reports  of  Officers 

(5)  Reports  of  Committees 

(6)  Communications 

(7)  Unfinished  Business 

(8)  New  Business 

(9)  Reports  of  Members  on  Conditions  affecting  the  Industry. 
Section  8.     GOVERNANCE  OF  MEETINGS — Roberts'  Rules   shall 

govern  at  all  meetings. 

Section  9.     AMENDMENTS  TO  BY-LAWS — These  By-Laws  may 
be  amended  by  a  two-thirds  vote  of  the  members  present  at  any 
regular  or  special  meeting  provided  notice  of  such  amendment 
shall  be  forwarded  to  each  member  ten  days  in  advance. 
********* 

We,  the  undersigned,  endorse  the  purposes  and  subscribe  to 
the  Constitution  and  By-Laws  of  the  *****  Institute. 

Upon  notification  from  the  **********    we  w;n  pav 
to  the  Secretary-Treasurer  of  the  Institute  a  membership  fee  of 
One  Hundred  Dollars  and  monthly  dues  thereafter  as  fixed  by 
the  Executive  Committee. 
Name Address 

By 

Name 

By 


EXHIBIT  IV 
MEMBERS  REPORTING  FORM 


Name  of  Member 

Date  Reported Prices  Effective. 

Remarks: 


Classification 

Style 

Package 

Memo. 

Wt. 

Count 

No.  to 
Lb. 

Price 

BUTTER  CREAMS 

Large  

Pails.  ... 

Boxes 

Mixtures,  Small  

Pails  

Mixtures,  Small  _  

Boxes.... 

Pails    . 

Corn,  Small    _  

Boxes  .. 

CARAMELS 

Chocolate  Dipped,            

Pails 

Pockets 

Machine  or  Enrober.    _  

Pails    . 

Layers 

Cheapest  Wrapt.         

Cases- 

CO 

Cheapest  Wrapt    .  ...»  

Cases.. 

45 

Cheapest  Wrapt   -  „  

Pails.  .... 

25 

Cheapest  Wrapt     .....      

Pails.   . 

Cheapest  Wrapt  

Boxes  .. 

Cheapest  Wrapt  —  

Boxes.  .. 

Pails 

Whipped  Cream,  Wrapt..-  

Whipped  Cream.  Wrapt  _  

Boxes  . 

Butterscotch    .        ..._  

Pails    . 

Butterscotch,  

Cases... 

Butterscotch.    ..._. 

Cases... 

Butterscotch.   „  

COCOANUT  WORK 

Bonbons  No.  i  

Pails  .  .. 

Bonbons,  No.  2              ..._ 

Pails    . 

Caramels,  Pure  Crystallized  

Pails  

Cheapest  Caramels,  Crystalized 

Pails  ... 

Tea  Biscuit*              

Macaroons...    .„  „  

Boxes  .. 

Boxes 

Jap  

Boxes 

CHOCOLATES 

Chocolate  Drops  

Pails  .... 

Machine  Dipped 

Chocolate  Drops         

Pails 

Chocolate  Drops  

Pails.  .„. 

Chocolate  Chips      .    .....  .. 

PaiU. 

Solid   

Boxes  .. 

Chocolate  Chips  „  

Pails    .. 

Honeycomb        

Boxes  . 

Nougats  „  

Almonds         .  ...»  

CREAM  BONBONS 

Plain.  

Pails 

Crystallized 

Fancy     

Pails   „ 

CREAM  WAFERS...... 

Pails    .. 

CREAM  AND  GUM 

Pails 

MI  XED—  Crystall  ized 

Small  

Pails 

50%  Gum  Work 

50%  Cream  Work 

GUM  WORK 

A.  B.  Crystallized 

Pails 

Sugar  Crystallized       

Pails 

A.  B.  Sugar  Rolled.  

Bbls..... 

Soft  Sugar  Rolled         

Bbls.. 

Spiced  Drops  and  Strings.   

Boxes  .. 

Licorice  Drops....  „. 

Boxes. 

NOTE:     The  complete  form  is  comprised  of  three  sheets. 


22O 


EXHIBIT  V 


DAILY  SALES  REPORT 

Fill  in  your  Sales  (Orders  Received)  on  this  blank  and  mail  EVERY  DAY  to  the 
North  Carolina  Pine  Association,  Norfolk,  Va. 

In  DELIVERY  column  under  RAIL  show  the  RATE  BEYOND  Norfolk,  and 
under  the  heading  WATER  show  POINT  of  delivery — such  as  Phila.,  N.  Y.,  Long 
Island  Sound,  etc. 

In  TIME  OF  SHIPMENT  column  state  if  sale  is  made  for  Future  Shipment, 
Contract,  etc.  When  no  time  is  shown  in  this  column  it  will  be  understood  the  order 
is  for  Prompt  Shipment. 

Enter  PRICE  under  the  Proper  Price  Column,  it  being  understood  that  the  terms 
"Less  5%"  and  "Net"  refer  to  the  matter  of  Commission  and  have  no  bearing  on  the 
customary  cash  discount. 

The  number  below  is  your  identification  in  the  Secretary's  office.  You  need  not 
sign  this  report. 

No. 


Quantity 
Ordered 
Feet 

DESCRIPTION 
(Give  full  particulars,  using  as 
much  space  as  necessary) 

DELIVERY 

Time  of 
Shipment 

PRICE 

Rail 
Rate 
Over 

Nfk. 

Point 
Water 

Wholesale 
Less  5% 

Direct 

Net 

221 


EXHIBIT  VI 

AMERICAN  HARDWOOD 
MANUFACTURER'S  ASSOCIATION 

OPEN    COMPETITION    PLAN 

SALES  REPORT 


Vol.  2.    No.  54    Executive  Office,  Bank  of  Commerce  &  Trust  Co.  Bldg.,  Memphis, 
Tenn.    Week  Ending  January  31,  1920 

ACTUAL  SALES  OF  HARDWOOD 

As  reported  by  members  of  the  Open  Competition  Plan  for  week  ending  January  31, 
1920 

SOUTHERN  TERRITORY 

GUM 

FIRSTS  AND  SECONDS  QUARTERED  RED  GUM  FIGURED  WOOD 

Delivered        Which  is     Current     Av, 

SOLD  BY  Date          Feet     Thickness     Destination     Price  Sold  to  Equivalent  at     of  Sales 

of  Sale  or  Territory      Customer         Cairo  to          at  Cairo 

*I5I    Sondheimer        1/26         15,000       4/4"        Pacific  Coast        232.00  211.00  211.00 

No.  i.     COMMON  AND  BETTER  QUARTERED  RED  GUM  FIGURED  WOOD 

*  59    NewDeemer      1/28         15,000       4/4"        Mississippi  203.50  206.75  

178.50  181.75  

FIRSTS  AND  SECONDS  QUARTERED  RED  GUM 

*I59    H.  Ridge  1/28  75,ooo     4/4"        Elmira  Ty  215.00  207.75  200.25 

150    Alex.  Bros.          1/15  15,000     4/4"        Cincinnati  188.50  186.25  

71    Kraetzer  1/29         (1)15,000  4/4"        Virginia  211.00  207.00  


190.00 
210.00 
245.00 


186.75 
213.00 
237.00 


105,000 

*  3*    Pritch-Wh.         1/26  8,000     5/4"        Kansas 

*  67    Faust  1/26  4,000     6/4-8/4"  Mississippi 
*I59    H.  Ridge            1/28          37,500     8/4"        Elmira  Ty 
(i)  Kraetzer-Cured,  Selects  at  191.00 

No.  i  COMMON  AND  BETTER  QUARTERED  RED  GUM 

*  44    Rush  1/23  15,000     8/4"        North  Carolina    240.00  233.00 

220.00  213.00 

321    Lamb-Gary        1/24  7500     8/4"        Huntington,         211.00  206.75 

W.  Va.          181.00  176.75 


186.75 
237.00 


*240    Bellgrade 


1/23 


13,000     8/4'( 


North  Carolina    245 .00 
225.00 


239.00 
229.00 


35,500 


NOTE* — Class  B — Sales  to  Consumers.    Actual  destination  not  reported.     Export  Sales  Reported 
onCairo  Rate  Basis. 


NOTE: — This  is  the  first  page;  the  entire  report  comprises  70  pages. 


222 


D.  O. 
Page  No.  I 


EXHIBIT  VII 

WEST  COAST  LUMBERMEN'S  ASSOCIATION 
SALES  REPORTING  DEPARTMENT 

DAILY  MARKET  BULLETIN  No.  487 
DIRECT 

Low 

Feet    Price 
M 
6      51  50 


12/27/20 


Total 
Volume 

High 
Feet    Price 

FLOORING 

M 

M 

ix4No.2VG  

19 

10 

SS-OO 

1x4  No.  3  SG  

8 

8 

24.00 

1x6  No.  2  and  B  SG  

7 

7 

32.00 

FINISH  No.  2  and  B 

1x8-10"  

16 

I 

53.00 

CEILING 

5/8x4  No.  2  and  B  

22 

5 

28.25 

No.3  

3 

3 

20.50 

1x4  No.  3  

II 

II 

24.00 

DROP  SIDING 

5/8x6  No.  4  

6 

6 

IS  00 

1x6  No.  2  and  B  

13 

13 

31.00 

RUSTIC 

5/8x6  No.  2  and  B  

10 

10 

32.50 

BATTENS  Lin. 

3"  Flat  

ii 

ii 

.75 

2#"  O.  G  

S 

S 

•95 

WAGON  BOTTOMS  Sets 

i3/i6x3_8V.G  
BOARDS  and  S/L 

12 

12 

3.6o 

1x4  SIS  No.  I  

3 

3 

16.00 

ii6  

6 

4 

18.50 

R«h  

2 

2 

17.75 

1x8-10"  

42 

2 

19-50 

1x4  and  W  SIS  No.  2  

8 

8 

13.50 

DIMENSION  S  and  E 

2x4    12-14  No.  i  

IS 

15 

15.50 

PLK  and  SML  TBRS 

4x4-6   12/16  848  

6 

6 

21.50 

3x10-12"   12/16  848  
TIMBERS  Under  32' 

2 

2 

23.00 

6x6/8x10      848  

4 

4 

26.00 

LATH  Fir  , 

IS 

IO 

4.00 

WHOLESALE 

FLOORING 

H4No.iVG  

9 

9 

57.00 

No.  2  VG  

44 

S 

Sl-oo 

No.;jVG  

10 

IO 

33.00 

I#x4  No.  2  and  B  VG  

5 

5 

55  -SO 

1x4  No.  2  and  B  SG  

15 

15 

24.00 

STEPPING  No.  2  and  B  

2 

2 

60.00 

FINISH  No.  2  and  B 

1x8-10"  

6 

S 

51  oo 

CASG  and  BASE  

2 

2 

58.00 

CEILING 

#14  No.  2  and  B  

5 

5 

26.50 

5/8x4  No.  2  and  B  

S 

S 

31.00 

No.3  

S 

5 

22.50 

1x6  No.  2  and  B  , 

5 

S 

32.50 

DROP  SIDING 

8 

8 

31.00 

BOARDS  and  S/L 
1x4  SIS  13/16  No.  i  

IS 

IS 

15.00 

1x12"  SIS  13/16  

15 

IS 

19.00 

1x6-8"  SIS  13/16  No.  3  

30 

30 

16.00 

DIMENSION  S  and  E 

2x4    12-14    No.  i  
PLK  and  SML  TBRS 

13 

U 

12.  OO 

4x4     12  /i6    848  
CEDAR  SIDING 

I 

I 

16.50 

JixioClrCol  

60 

60 

70.00 

51.50 
28.00 


Prevailing 
Feet    Price 
M 


17      28.00 


16.50 
17.50 


3.75 


49-OO 


50.00 


30      17.50 


NOTE:     No  specified  lengths  prices  are  shown  on  Bulletin. 
detail  sales  I,  288,894  Ft. 


Total  volume  for  day  in  Bulletin  and 


223 


EXHIBIT  VIII 

NORTH  CAROLINA  PINE  ASSOCIATION 
NORFOLK,  VIRGINIA 

WEEKLY  REPORT  OF 
ORDERS,  SHIPMENTS  AND  PRODUCTION 


No.  1 02 

Norfolk,  Va.,  November  i8th,  1920. 
For  Week  ending  Saturday,  November  ijth,  1920. 

45  MILLS  REPORT: 

Orders 2,654,968  feet  58,999  feet 

Shipments 4,976,168    "  1 10,581    " 

Production 5,707,723    "  126,838    " 

Normal  Production 12,726,000    "  282,800    " 

Orders  below  Shipments 2,321,200  feet  =  47% 

Orders  below  Actual  Production 3,052,755    "     =  53% 

Shipments  below  Actual  Production.  731,555  "  =  13% 
Orders  below  Normal  Production.  ...10,071,032  "  =  79% 
Shipments  below  Normal  Production  7,749,832  "  =  61% 
Actual  Production  below  Normal 7,018,277  "  =55% 


Increase  in  Orders  compared  with 

last  week 823,868  feet  =  45% 

Increase  in  Number  of  Reports  from 

last  week c 


PREVIOUS  REPORTS 


Week               N 
Ending              N 
Aug.  21  
Aug.  28  

o.  of 

tins 

9 
% 
9 

37 
42 
39 
44 
43 
40 
45 

Orders 

5,227,500  feet 
5,264,100     " 
3  410,600    " 
2,420,433     " 
3,603,000     " 
4,764,348     " 
4,919,500     " 
3,190,800    " 
2,389,900     " 
3,859,900     " 
1,854,000      ' 
1,831,100     " 
2,654,968     " 

Shipments 
5,065,181  feet 
5,052,079     " 
5,838,799     " 
4,152,631     ' 
4,047.873     ' 
6,556,171     ' 
5,830,971     ' 
4,498,382     " 
3,202,174     " 
4,766,883     " 
4,261,144     " 
3,778,269     " 
4,976,168     " 

Production 
5,722,051  feet 
5.559,528     " 
6,134,992     " 
5,809,137     " 
6,008,703     ' 
7,456,497     " 
5,636,717     ' 
7,575,162     " 
5,555,339     " 
7,026,060 
6,581,118     " 
5,424,418     " 
5.707,723     " 

Normal 
Production 
1  2,774,000  feet 
12,954,000     " 
14,184,000     " 
13,692,000     " 
12,498,000     " 
13,896,000     " 
12,234,000     " 
15,174,000     " 
12,144,000     " 
14,784,000     " 
14,112,000     " 
13,044,000     " 
12,726,000     " 

Sept.    4  

Sept.  II  

Sept.  18  

Sept.  25  

Oct.     2  

Oct.     9  

Oct.    16  

Oct.   23  

Oct.   30  

Nov.    6  

Nov.  13  

Total  3  months  
Total  Year  to  Date. 

.  .    45,429,149    " 
.  .  199,458,658 

62,026,815     " 
254.902,748     " 

80,287,445     " 

284,487,000     ' 

174,216,000 
565,254,000 

" 

Barometer  indicates  percentage  of  Production,  Orders  and  Shipments  above  or  below  Normal  Production, 
which  is  shown  as  "Base,"  or  100%. 

The  above  form  of  Barometer,  originated  by  the  Brookmire  Economic  Service  to  picture  Fundamental 
Business  and  Financial  Conditions,  is  used  by  this  Association  with  their  permission. 


224 


EXHIBIT  IX 


PRODUCTION  AND  SALES  STATISTICS  AND  REPORT  OF  SPECIAL 
QUOTATIONS    FOR   THE    MONTH   OF   OCTOBER,    1920. 

(a)  Percent  actual  QUANTITY  production  to  Normal. 

(b)  Percent  actual  VALUE  production  to  Normal. 

(c)  Percent  actual  QUANTITY  SALES  to  Normal. 

(d)  Percent  actual  QUANTITY  BOOKS  SOLD  NEW  USERS  to  Total  sold. 

(e)  Time  required  to  complete  unfilled  orders  and  contracts. 


Member 

(a) 

(b) 

(c) 

(d) 

Special 
Quotation 
(e)                   Filed 

Sales 
Below 
List 

i 

2 
4 

I 

1 
8 
ii 
13 

149.4 
77-4 
107.3 
73-9 
106.2 
71.8 
128.1 

129.9 

232-4 

I2O.  I 
165.8 
II3.2 
158.9 
Il6.7 
138.2 
199.9 
194-2 

146.3 
52.6 

74-1 
62.6 

75-5 
85.1 
73-2 
85-7 
71.3 

6  to    7  w 
8  to    9 
8  to    9 
5  to    6 

I  to     2 
3  to    4 
10  to  1  1 
2  to    3 

II  tO  12 

ks. 

i 

24.4 

43-4 
12.6 

13-3 
36.3 
n.  6 
25.2 
3-9 

Whole 
Indus- 
try 


127.0      142.0       93.4 


19.4 


II   to  12 


105.9      J42-4        67.3        17.7          9  to  10  wks.       None 
(No  exchange  of  information  between  members.) 


MONTHLY  COMPARISON  OF  PRODUCTION  AND  SALES  FOR  WHOLE 
INDUSTRY  FOR  YEAR  ENDING  OCTOBER  30,  1920. 


Month 


(a) 


(b) 


(c) 


November,  1919              95.3 

105.8 

100.4 

December,                      104.0 

116.4 

111.9 

January,      1920            100.7 

101.9 

121.7 

February, 

92.0 

97-8 

99-0 

March, 

99-4 

113.2 

IIO.  2 

April, 

56.0 

82.2 

II9.5 

May, 

"3-7 

127.7 

100.6 

June, 

July, 

110.4 
107.0 

130.1 
126.9 

97-3 
81.5 

August, 

107.  i 

138-8 

74-5 

September, 

in.  8 

150.4 

84.1 

October,                        105.9 

142.4 

67-3 

Average 


100.3 


119.5 


97-3 


(d) 

19-3 

20.7 
20.7 

20.8 
22.  I 
I7.8 
18.1 
16.7 
15.0 
13-8 
14-7 
'7-7 

18.1 


(e) 


7  to    8  Weeks 
7  to    8 
ii  to  12 

11  to  12 

12  to  13 
14  to  15 
14  to  15 

13  to  14 

12  to  13 
II   tO  12 

10  to  ii 
9  to  10 


225 


EXHIBIT  X 
STOCK   REPORT,  JANUARY    IST,    1920 

As  reported  by  the  members  of  the 

AMERICAN  HARDWOOD  MANUFACTURER'S  ASSOCIATION 
MEMPHIS,  TENNESSEE 

Note — The  oversold  column  shows  that  some  of  the  members  are  oversold  on  these 

various  items.     The  "Unsold  January  1st"  column  shows  that  some  of  the 

members   have   these   various   amounts   unsold. 

FIGURES  DENOTE  THOUSANDS 

GUM 

FIRST  AND  SECONDS  QUARTERED  RED  GUM  FIGURED  WOOD 


Jan.   i     J 
Thickness  Width                Dry        i 

l"                                                       no 

fan.   i 
Green 
38 

10 

Jan.   i 
Total 
128 

22 

4 
41 
12 

Jan.   i     Jan.   I      Tan.   I     Dec.  I      Stock       Stock 
Sold     Oversold  Unsold    Unsold    Increase  Decreas 
28              9           109            35             74 
3               3             22             15              7           ... 
3              3              4           ....             4 
13              3             31             26              5           ... 

...              12                 ll              

I  1/4"... 

12 

I  1/2    ... 

4 

2" 

41 

2  I  V 

12 

3" 

...         3 

1 

3 

3 

Total. 

.  .  .        .  .    162 

48           210            47 

SELECTS  QUARTERED 

10            83             33 

21 
...                    IO                -  -  - 

18 

RE 

181 

D  GUM 

SO 

21 
IO 
If 

99 
kt  FlGUF 

91 

FIGURED 
41 

9 

12 

8 
70 

.ED  WOOD 

2 

90 

WOOD 

9 

12 
10 
31 

2 
2 

2 
2 

4 
2 

a 

No. 

i".  .  . 

i  COMMON  AND 

73 

I  1/4"... 

21 

I  1/2".  . 

10 

1"!..  ....... 

18 

IO 

5  SEC 

18 
132 

:ONDS  PL. 

II 

44 

UN  RED 

ii 
ii 

GUI 

Total.  .  . 

122 

S/8"... 

FIRST  ANI 

?'.. 

IOO 

27 

10 
IO 

47 

AND 

45 

4; 

127 

30 

3 
23 

183 

SELECTS 

221 

13 

i 

23  S 

PLAIN  RED 

2 
2 

127          129 

30            23               7 
3              3 
23             20              3 

183           177             10 

GUM  FIGURED  WOOD 
219        154          65 

13                  II                    2 

i               3 

233            168             67 

i  1/4".... 

20 

,  ,/2"  

3 

2"  

13 

Total.  .  . 

136 

i"  

No.  i  COMMON 
176 

i  1/4"  

13 

2"  

i 

Total.  .  . 

.      190 

LOG  RUN  PLAIN  RED  GUM  FIGURED  WOOD 
30          16          46        ...         ...          46          46 


NOTE:     This  is  the  first  page;  the  entire  stock  report  comprises  63  pages. 


150 


226 


EXHIBIT  XI 


DISTRICT  TWELVE 

OF   THE 

NATIONAL  ASSOCIATION  OF  BOX  MANUFACTURERS. 

Report  of  business  conditions  for  month  of 192. . . . 

Unless  otherwise  stated,  answers  to  questions  should  be  based  upon  comparison  with 
preceding  month. 

MARKET  CONDITIONS.  - 

1.  What  it  the  trend  of  business  as  indicated  by: 

("Lighter (Lighter (Higher  

Demand  on                                           Inquiries  on  Selling 

(a)  <  Same (b)  <  Same (c)  t  Same 

Contracts?                                            New  Business?  Price? 

[Heavier  [Heavier I, Lower 

2.  Are  you  in  position  to  take  additional  business?     If  so, 

(a)  How  much? ;     (b)  What  class  cf  boxes? 


3.     List  average  prices  per  M  feet  of  all  Sales 
during  the  month. 

Material 

Average  price  per  M  feet  for  the  month,  sales  in 
lots  of 

50  boxes 
or  less 

100 

boxes 

KS°° 

boxes 

1,000 

boxes 

White  Pine 

Made  up 

Shocks 

Gum  and  Yellow  Pine 

Made  up 

Shocks 

Poplar  and  Cottonwood 

Made  up 

Shocks 

RAW  MATERIAL 

[Above  Normal?  — 

4-     (a)  Is  your  lumber  stock  in  yard  and  purchased  •( Normal? 

I  Below  Normal?  

(b)  For  what  period  are  your  entire  requirements  covered  by  purchases?. 

(c)  Are  you  in  the  market  now          ( M  feet 

and  jf  so,  for  what  material          i M  feet 

and  in  what  quantity?  \ M  feet_ 


(d)  Do  vou  wish  to  offer  any  of  your  lumber  stock? 
M  feet  of . 


If  so,  note  quantity  and  description 


-Material. 
-Material. 
-Material. 


(Lower?  . 

(a)  Is  the  market  on  Box  Lumber     {Same?  _ 

IHigher? 

(b)  List  all  offerings  of  Box  Lumber. 


Offer  made  by 

Quantity 

Description 

Price  per  M 

f.o.b.  what  point 

(c)  List  of  all  purchases  of  Box  Lumber. 

Purchased  from 

Quantity 

Description 

Price  per  M 

f.o.b.  what  point 

6.     Summarize  briefly  labor  situation. 


LABOR 


GENERAL 
7.     Note  any  special  questions  you  desire  to  have  discussed  at  the  next  meeting. 


(Signature). 


227 


EXHIBIT  XII 


(Company) 


W.  D.  Burr, 

1553  Conway  Building, 

Chicago,  Illinois. 
Dear  Sir: 

Below  is  a  statement  of  hourly  rate  of  wages  paid  by  this  com- 
pany for  the  various  classes  of  labor  indicated  during  the  month 
of 1920. 

Employe  Hour  Rate  of  Wages  Paid 

Saw  Filer Cents  per  hour. 

Rip  Sawyer 

Cut-off  Sawyer 

Planer "       "      " 

Planer  Helper "      "      " 

Re-Sawyer 

Re-Sawyer  Helper 

Machine  Nailer "       "       " 

Matcher "       "      " 

Matcher  Helper "       "       " 

Printer 

Common  Labor 
(Except  Women) 

Women . . 


We  are  paying  at  rate  of for  overtime. 

Our  factory  is  now  working  on  a hour  per  day  basis. 

S  pace  for  additional  remarks  in  explanation  of  wage  figures  given. 


(Signed) 


228 


EXHIBIT  XIII 

NORTH  CAROLINA  PINE  ASSOCIATION 
NORFOLK,  VA. 


Operating  Costs,  For  Month  of_ 
(with  Analysis) 


.192 


(Concern  or  Number) 


(Address) 


Total  for  the  Month 

ANALYSIS 

Labor 

Other  Expenses 

I  Stumpage  (Board 
Measure)    ._  

Amount 

Av.  Cost 
Per  M.  Ft. 

Amount 

Av.  Cost 
Per  M.  Ft. 

Amount 

Av.  Cost 
Per  M.  Ft. 

2  Logging  Expense  

1 

4  TOTAL  COST  OF 
LOGS  AT  MILL 

(Lines  1,2,  and  3.) 
5  Saw  MilL  

6  Dry  Kilns  ,  

7  Yarding  and  Shipping 

8  TOTAL  COST  OF 
MANUFACTURING 

(Lines  5,  6,  and  7.) 

II  General  Overhead.  

12  TOTAL  OVERHEAD 
COST          

(Lines  9,  10,  and  u) 
IJ  Selling  Expense 

U  TOTAL  COST  OF 
ROUGH  LUMBER 

(Lines  4,  8,  12,  and  13) 

IS  Planing  Mill  Cost.. 

16  TOTAL  COST  OF 
FINISHED  LUMBER 
(Lines  14  and  15) 

17 

18  TOTAL  ROUGH  LBR.  PRODUCTION 

(B.  M.) : M.  FEET.    NORMAL  RUNNING  TIME. HOURS. 

(For  the  Month) 

19  TOTAL   DRESSED   LBR.   PRODUC- 

TION (B.  M.). M.  FEET.    ACTUAL  RUNNING  TIME HOURS. 

(For  the  Month) 

20  AVERAGE  YIELD  PER  LOG. 

(B.  M.) FEET.       LOST  TIME..... HOURS. 


229 


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3 

BIBLIOGRAPHY 

I.     OFFICIAL  PAMPHLETS,  REPORTS,  AND  RECORDS 

FEDERAL  RESERVE   BANK   OF   PHILADELPHIA,  How  Is   Business? 

Philadelphia,  Federal  Reserve  Bank  of  Philadelphia,  1920. 
FEDERAL  TRADE  COMMISSION: 

1.  Report  on  the  Book-Paper  Industry,  Washington,  D.  C. 

1917. 

2.  Report  on  the  Causes  of  High  Prices  of  Farm  Implements, 

Washington,  D.  C.     1920. 

3.  Preliminary  Report  to  the  Senate  and  House  on  Lumber 

Associations,  Washington,  D.  C.     January  10,  1921. 

FOREST  SERVICE,  THE,  United  States  Department  of  Agriculture, 
Timber  Depletion,  Lumber  Prices,  Lumber  Exports,  and  Con- 
centration of  Timber  Ownership,  Washington,  D.  C.  1920. 

NEW  YORK  JOINT  LEGISLATIVE  COMMITTEE  ON  HOUSING,  Record 
of  Hearings,  New  York.  1920. 

STATE  vs.  AMERICAN  LUMBER  Co.,  et  al.,  260  Mo.  212.    1914. 

UNITED  STATES  vs.  AMERICAN  COLUMN  AND  LUMBER  Co.,  et  al., 
No.  369,  U.  S.  Supreme  Court: 

1.  Transcript  of  Record,  Supreme  Court,  October  Term,  1920, 

No.  369. 

2.  Boyle,  L.  C.,  Argument  for  the  Appellants  before  the  U.  S. 

Supreme  Court,  October  21,  1920. 

3.  Brief  for  the  Appellants,  1920. 

4.  Brief  for  the  United  States,  Washington,  D.  C.    1920. 

5.  Opinion  of  Judge  McCall,  District  Court  of  the  U.  S.,  West- 

ern District  of  Tennessee,  Western  Division,  March  16, 
1920. 

6.  Oral  Arguments  before  the  Supreme  Court,  October  21,  1920. 
UNITED  STATES  vs.  AMERICAN  LINSEED  OIL  COMPANY,  et  al.: 

1.  Bill  of  Complaint,  filed  June  30,  1920,  Northern  District, 

Eastern  Division. 

2.  Answer  to  Bill  of  Complaint. 

UNITED  STATES  vs.  BOARD  OF  TRADE,  246  U.  S.  231.    1918. 

231 


232  OPEN  PRICE  ASSOCIATIONS  [396 

UNITED  STATES  vs.  READING  Co.,  183  Fed.  Rep.,  427.   1910. 
UNITED  STATES  vs.  UNITED  STATES  STEEL  CORPORATION,  et  al.,  223 
Fed.  Rep.  55.   1915. 

1.  Transcript  of  Record,  59  volumes.     See  especially  volumes 

2>  3>  4>  5>  6,  8,  9,  12,  15,  19,  20,  Defendants'  Exhibit  3. 

2.  Opinions  of  the  Judges,  223  Fed.  Rep.  55. 
UNITED  STATES  BUREAU  OF  CORPORATIONS: 

1.  Farm  Machinery   Trade  Associations,  Washington,  D.  C. 

1915. 

2.  Trust  Laws  and  Unfair  Competition,  Washington,  D.  C. 


II.     MISCELLANEOUS  PAMPHLETS,  BULLETINS, 

AND  DOCUMENTS 
AINSWORTH,  A.  A.,  "Address  before  the  Western-Central  Associa- 

tion of  Stove  Manufacturers,"  May  7,  1917.    (No  p.  no  d.) 
ARNY,  Louis  W.,  "The  Leather  Belting  Exchange."   Address  be- 

fore the  Babson  Conference  on  Cooperative  Competition,  Sept. 

29-30,  1915.  Philadelphia.  The  Leather  Belting  Exchange.  1915. 
BABSON,  R.  W.,  "Reports  on  Cooperation."  Wellesley  Hills,  Mass. 

Babson's  Statistical  Organization.     1915. 
GARSIDE,  ALSTON  H.,  "The  Value  of  Statistical  Reports  in  Business." 

Address  before  the  Annual  Convention  of  Knit  Goods  Manu- 

facturers of  America,  Utica,  N.  Y.,  May  20,  1920.    New  York. 

Clark  McKercher.     1920. 
KELLOGG,  R.  S.,  "The  Legitimate  Functions  of  Trade  Associations." 

Address  before  the  Business  Secretaries'  Forum,  Chicago,  Jan. 

25,  1918. 

Leather  Belting  Exchange,  By-Laws.     (No  p.  no  d.) 
MCKERCHER,  CLARK: 

1.  "Open  Door  Competition."  Address  before  the  National  Asso- 
ciation of  Cotton  Manufacturers,  Boston,  April  28,  1915. 

2.  "Recent  Literature  on  Cooperation  in  Business."  (No  p.  nod.) 
NATIONAL  COAL  ASSOCIATION,  "Illinois  Coal  Trade  Associations." 

Washington,  D.  C.     (No  d.,  probably  1920.) 


397]  BIBLIOGRAPHY  233 

NEW  ENGLAND  BUILDERS'  SUPPLY  ASSOCIATION,  Annual  Official 
Program,  Boston.  1917. 

OHIO  MILLERS'  STATE  ASSOCIATION,  THE,  Directory  of  Ohio  Flour 
Mills,  1920.  (Contains  copy  of  constitution.)  Columbus,  Ohio. 
Frank  H.  Tanner.  1920. 

SALT  PRODUCERS'  ASSOCIATION,  Articles  of  Association  and  By- 
Laws.  (No  p.  no  d.) 

SOCIETY  OF  MANUFACTURING  CONFECTIONERS,  Constitution  and  By- 
Laws.  (No  p.  no  d.) 

STEEL  BARREL  MANUFACTURERS'  ASSOCIATION,  Constitution  and 
By-Laws.  (No  p.  no  d.) 

SPAULDING,  W.  V.,  "Experience  in  Cooperative  Competition."  Ad- 
dress before  the  Babson  Conference  on  Cooperative  Competi- 
tion, Sept.  15,  1916.  Philadelphia.  The  Leather  Belting  Ex- 
change. 1916. 

STEVENSON,  C.  R.,  "The  Elimination  of  Unfair  Competition."  Ad- 
dress before  the  National  Bottle  Manufacturers'  Association, 
Atlantic  City,  N.  J.,  May  i,  1920. 

Transactions  of  the  National  Association  of  Cotton  Goods  Manu- 
facturers. Boston.  1866. 

WEST  COAST  LUMBERMEN'S  ASSOCIATION,  Constitution  and  By- 
Laws.  (No  p.,  1911.) 

III.     BOOKS  AND  ARTICLES 

BELT,  ROBERT  E.,  "Improved  Accounting  Methods  and  Business 
Practises."  American  Lumberman,  Feb.  3,  1917.  (Volumes  not 
numbered.) 

BLACK  DIAMOND,  THE,  "How  National  Coal  Association  Reports 
Sales."  Editorial,  Oct.  i,  1919,  vol.  63. 

BRANDEIS,  L.  D.,  "Cutthroat  Prices  the  Competition  that  Kills." 
Harper's  Weekly,  Nov.  15,  1913,  vol.  58. 

CLARK,  J.  B.,  "The  Possibility  of  Competition  in  Commerce  and 
Industry."  Annals  of  the  American  Academy  of  Political  and 
Social  Science,  July,  1912,  vol.  42. 

COAL  AGE,  "Open  Price  Bureau  and  Scheme  to  Sustain  Price  De- 
clared Unlawful."  Editorial,  April  8,  1920,  vol.  17. 


234  OPEN  PRICE  ASSOCIATIONS  [398 

COFFIN,  W.  C.,  "Cooperation  vs.  Unrestrained  Competition." 
Iron  Age,  April  23,  1914,  vol.  93. 

EDDY,  ARTHUR  J.: 

1.  "New  Competition."    World's  Work,  October,  1911,  vol.  23. 

2.  "New  Competition."     World's  Work,  June,  1912,  vol.  24. 

3.  "New  Competition."     World's  Work,  July,  1912,  vol.  24. 

4.  New  Competition,  The.  New  York.  D.  Appleton  and  Com- 
pany.   1912. 

ELECTRIC  REVIEW,  "Open  Price  Competition  Offers  Remedy  for 
Overproduction:  System  of  Institute  of  Lighting  Fixture  Man- 
ufacturers." Editorial,  Oct.  12,  1918,  vol.  73. 

FAYLE,  C.  ERNEST,  "Trade  Combinations  in  the  United  Kingdom." 
Edinburgh  Review,  July,  1919,  vol.  230. 

FERRY,  MONTAGUE,  Intelligent  Selfishness  a  Business  Builder. 
Chicago.  L.  C.  Woodworth.  1919. 

FOOTE,  ALLEN  RIPLEY,  "Unregulated  Competition  is  Destructive  of 
National  Welfare."  Annals  of  the  American  Academy  of  Polit- 
ical and  Social  Science,  July,  1912,  vol.  42. 

FRANCIS,  ROBERT  T.,  "Observations  on  the  Woolen  Market."  Jour- 
nal of  Commerce,  May  27,  1916. 

GAUNT,  E.  H.: 

1.  Cooperative  Competition.    Providence,  R.  I.    The  Stevens 

Press.     1918. 

2.  "Open   Price   Plan   for   Woolens    and  Worsteds."    Textile 
World  Journal,  April  8,  1916,  vol.  51,  pt.  2. 

HURLEY,  E.  N.: 

1.  The  Awakening  of  Business.  New  York.   Doubleday,  Page 

&  Co.    1916. 

2.  "Present  Attitude  of  the  Government  Towards  Trade  Asso- 

ciations." Heating  £«?  Ventilating,  September,  1916,  vol.  13. 

3.  "Trade  Associations  and  Business  Methods."  Metal  Worker, 

Plumber  &  Steam  Fitter,  January  9,  1916,  vol.  121. 
JEVONS,  W.  S.,  Theory  of  Political  Economy.    London.    MacMil- 

lan  &  Co.    1888. 
JOHNSON,  ALVIN   S.,   "Review  of  'New   Competition'  by   A.  J. 

Eddy."  Political  Science  Quarterly,  March,  1913,  vol.  28. 


399]  BIBLIOGRAPHY  235 

KEITH,  CHAS.  S.,  "Organization  and  Cooperation."  American 
Lumberman,  January  22,  1916.  (Volumes  not  numbered.) 

LEVY,  F.  H.,  "The  Sherman  Law  as  Affecting  Trade  Associations." 
Domestic  Engineering,  May,  9,  1914,  vol.  67. 

LORD,  FRED  W.,  "The  Ethics  of  Contracting  &  Stabilizing  Profits." 
New  York.  The  Country  Life  Press.  1918. 

MAC!LWAINE,  G.  E.,  "Address  before  American  Specialty  Manu- 
facturers' Association."  Journal  of  Commerce,  December  n, 
1916. 

MCKERCHER,  CLARK: 

1.  "Progress  Made  in  Applying  Cooperative  Competition  in 

Textiles."   New  York.   Journal  of  Commerce,  January  3, 
1917. 

2.  "Open  Competition."    Textile  World  Journal,  December  9, 

1916,  vol.  52,  pt.  i. 
MONTAGUE,  GILBERT  H.: 

1.  Business  Competition  and  the  Law.    New  York.    London. 

G.  P.  Putnam's  Sons.  1917. 

2.  "Legal  Phases  of  Open  Price  Work."  Journal  of  Commerce, 

March  20,  1920. 

MOORE,  O.  L.,  "The  Open  Price  Plan."  The  Business  Secretaries' 
Forum,  December,  1919. 

NATION'S  BUSINESS,  "The  Open  Competition  Plan."  Editorial, 
April,  1920. 

NAYLOR,  E.  H.,  Trade  Associations.  New  York.  The  Ronald 
Press  Company.  1921. 

PALGRAVE,  R.  H.  I.,  Dictionary  of  Political  Economy.  New  York. 
London.  MacMillan  &  Co.  1910.  3  volumes. 

ROBINSON,  M.  H.,  Gary  Dinner  System.  Unpublished  Manu- 
script. Champaign,  Illinois. 

ROHRBACH,    C.    H.   AND   MURPHY,   J.   A.: 

1.  "Open   Price  Associations."    Printers'  Ink,  June  3,    1920, 

vol.  3. 

2.  "Reverse  Side  of  Open  Price  Association."    Printers'  Ink, 

June  24,  1920,  vol.  3. 


236  OPEN  PRICE  ASSOCIATIONS  [400 

TAUSSIG,  F.  W.,  Principles  of  Economics.   New  York.   The  Mac- 

millan  Company.   1911.  2  volumes. 
THOMPSON,  H.  B.,  "Keystone  of  Open  Price  Theory  is  Publicity." 

New  York  Journal  of  Commerce,  January  4,  1916. 
TOSDAL,  H.  R.,  "Open  Price  Associations."    American  Economic 

Review,  January  17,  1917,  vol.  7. 

Periodicals 
American  Lumberman.    Chicago.    Weekly.    See  1912  et  seq. 

Chicago  Tribune.    Chicago.    Daily.     See  April  18,  1921. 

New  York  Journal  of  Commerce.  New  York.  Daily.  See  No- 
vember, 1915  et  seq. 

New  York  Times.  New  York.  Daily.  See  December  29,  30, 
1920  and  January  3,  1921. 

Southern  Lumberman.  Nashville,  Tenn.  Weekly.  See  1912  et  seq. 

New  York  Tribune.  New  York.  Daily.  See  December  29,  30, 
1920. 

Textile  World  Journal.    New  York.    Weekly.    See  1916  et  seq. 

World,  The.    New  York.    Daily.     See  September  13,  1920. 


INDEX 


Advertising,  reporting  of,  72;  coopera- 
tion in,  86-87 

American  Cotton  Manufacturers'  Asso- 

|    ciation,  16 

American  Hardwood  Manufacturers' 
Association,  membership,  14*^5;  atti-, 
tude  toward  buyers/ 23;  prices^6^f 
nature  of  meetings, •66-67;  sales  re- 
ports,V77;  production  reports,  *8o; 
stock  reports/ioi;  history,  purposes, 
organization,  and  operation/^- 133; 
bill  of  complaint,  U.  S.  Attorney 
General,  ilfj;  decree  of  district  court 
of  Tennessee,  ijfi.y  1^4;  hearings  be- 
fore U.  S.  Supreme  Court,  144 

American    Iron    and    Steel    Institute, 

38-39 

American  Oak  Manufacturers'  Associa- 
tion, 125 

Armstrong  Bureau  of  Related  Indus- 
tries, 63,  77,  109,  no 

Associated  Metal  Lath  Manufacturers, 

63 

Attorney  General,  opinion  of,  on  legal- 
ity of  open  price  plan  as  conducted  by 
the  American  Hardwood  Manu- 
facturers' Association,  144 

Attorneys,  opinions  of,  on  legality  of 
open  price  plan,  149-157 

Babson  Statistical  Organization,  as 
popularizer  of  open  price  plan,  28;  on 
legal  aspects  of  open  price  work,  165 

Bargaining,  comparison  of  advantages 
to  buyers  and  sellers  of,  186,  197,  198; 
efficiency  in,  201 

Belt,  R.  E.,  on  false  price  reporting,  96; 
on  legitimacy  of  trade  association 
activities,  170 

Bids,  68-71,  96,  1 10,  185 

Bill  of  complaint,  American  Hardwood 
Manufacturers'  Association,  143 

Book-paper  industry,  association  ac- 
tivities in,  162 

Boyle,  L.  C.,  on  legality  of  issuing  price 
lists  and  discount  sheets,  118;  on 
legality  of  reporting  high  sales,  161 

Bridge  Builders'  and  Structural  Society, 

24 
Business  statistics,  reporting  of,  41;  use 

of,  99;  advantage  of,  103;  demand  for, 
200 
Buyers,  attitude  of  associations  toward, 


23»  47>  fraudulent  practises,  95,  97, 
185,  190,  192-194;  attitude  toward 
open  price  plan,  106-107;  desire  for 
stable  market,  136;  position  as  bar- 
gainers, 1 86,  197-198 

California  White  &  Sugar  Pine  Manu- 
facturers' Association,  on  delin- 
quency in  reporting,  no 

California  Wholesale  Grocers'  Asso- 
ciation, on  difficulties  of  reporting  on 
a  variety  of  articles,  108 

Cancellations,  reporting  of,  72 

Central  office,  organization  and  oper- 
ation of,  62-63 

Chair  manufacturers,  reporting  among, 

73 
Chicago  Lumber  Dealers'  Association, 

15  . 

Coal  industry,  open  price  work  in,  14 

Combinations  (iron  and  steel  indus- 
try), regulation  of  output,  29;  price 
fixing,  29;  division  of  business,  29; 
reporting  system,  30;  objects,  31 

Commerce,  Department  of  Foreign  & 
Domestic,  relation  to  open  price 
movement,  204-206 

Competition,  ignorance  in,  23;  evils  of, 
41-43;  economists  on,  43-44;  views  of 
A.  j.  Eddy  on,  43;  views  of  Samuel 
Untermyer  on,  169-170;  views  of 
W.  J.  Mathews  on,  169-170;  potential 
and  indirect,  189,  199;  criticism  of 
Eddy's  concept,  197;  views  of  U  S. 
Government  on,  201 

Contracts,  reporting  of,  71-72 

Cooperative  competition,  9 

Cooperative  spirit,  development  of,  34, 

41,91 

Cost  accounting,  cooperation  in,  19, 
23-24,  80 

Costs,  reporting  of,  72,  86,  87;  abuses, 
159;  ignorance  of,  190 

Court  cases,  State  vs.  Arkansas  Lum- 
ber Co.,  145-148;  t).  S.  vs.  American 
Column  &  Lumber  Co.,  145,  149; 
Chicago  Board  of  Trade  case,  147; 
U.  S.  vs.  Reading  Co.,  147;  U.  S.  vs. 
U.  S.  Steel  Corporation,  148;  U.  S. 
vs.  Aileen  Coal  Co.,  148;  U.  S.  vs. 
Eastern  States  Retail  Lumber  Deal- 
ers' Association,  148;  U.  S.  vs.  Hollis 
etal,  149 


237 


238 


INDEX 


[402 


Credit  information,  reports  of,  72,  88-89 
Credit  mens"  associations,  88 

Discount  sheets,  117-118 
Dues,  57,  58,  126 

Eddy,  A.  J.,  open  price  work  in  lumber 
industry,  27;  on  competition,  41-44; 
open  price  plan,  47-49;  on  legality  of 
open  price  plan,  149,  152,  153;  on  co- 
operation in  regulation  of  terms  of 
payment,  163 
Exchanges,  value  of,  45 
Expense  of  open  price  work,  105 

Farm  implement  industry,  association 

activities  in,  158-159;  162 
Federal  anti-trust  laws,  violation  of,  142 
Federal  Government,  attitude  of,  169- 

i?3 

Federal  Reserve  Board,  reporting  sys- 
tem, 172,  204 

Federal  Trade  Commission,  on  co- 
operative activities  in  the  lumber  in- 
dustry, 116;  on  cooperation  in  the 
study  of  costs,  158-159;  on  publicity 
of  association  activities,  166-167 

Forest  Service  of  the  United  States  De- 
partment of  Agriculture,  report  on 
the  lumber  industry,  131,  137;  on 
legality  of  open  price  work,  157;  on 
publicity  of  association  activities, 
1 66;  attitude  toward  association 
activity,  172 

Freight  allowances,  reporting  of,  72 

Gary  dinners,  33-38 

Gaunt,  E.  H.,  on  remedy  for  trade  asso- 
ciation abuses,  165 

Grades,  81,  108 

Gum  Lumber  Manufacturers'  Associa- 
tion, 124 

Hardwood  Manufacturers'  Association 

ofU.  S.,  124 
Hurley,  E.  N.,  on  prevalence  of  cost 

systems,   190 

Incorporation,  comparison  with  volun- 
tary association  type,  50-53 

Information  Bureaus,  28 

Inquiries,  reports  of,  68,  70 

Inspection,  reports  of,  130 

Iron  and  steel  industry,  open  price 
activity  in,  17-18,  39;  combinations 
in,  29-31;  statistical  associations,  32- 
33;  Gary  dinner  system,  33-38;  de- 
velopment of  cooperative  system  in, 
34 


Jevons,  W.  S.,  on  competition,  183 
Jobbers,  72 

Knit  Goods  Manufacturers  of  America, 
17,56,64,73,76,110,111 

Labor  costs,  reports  of,  86 

Leather  Belting  Exchange,  54,  64,  76 

Legality^  of  open  price  work,  123,  142- 
145;  opinions  of  attorneys,  149-157; 
opinion  of  Forest  Service,  157-1^8 

Lehmann,  W.  F.,  on  legality  of  open 
price  plan,  150-152 

Levy,  F.  H.,  on  legality  of  open  price 
plan,  153-154 

Linseed  Crushers'  Council,  reporting 
system  of,  76 

Lockwood  Committee  (New  York 
Joint  Legislative  Committee  on 
Housing),  testimony  of  Wm.  J.  Math- 
ews  before,  no 

Lumber  industry,  extent  of  open  price 
activity  in,  15;  development  of  open 
price  work  in,  26;  influence  of  buyers 
in,  97;  standardization  in,  114,  120; 
associations  in,  116;  evils  and  remed- 
ies, 134-137,  140;  Forest  Service  re- 
port on,  137;  cost  of  production  in, 
139;  conservation  of  timber,  141 

McKercher,  Clark,  on  attitude  of 
Federal  Government  toward  trade 
associations,  171 

Manganese  Steel  Founders'  Society,  25 

Manganese  Track  Society,  25 

Mathews,  Wm.  J.,  on  legality  of  open 
price  plan,  154-156;  on  ignorance  in 
competition,  169-170 

Meetings,  frequency  of,  63-64;  quorum, 
64;  attendance  of  buyers  at,  64;  top- 
ics of  discussion  at,  64-66;  attendance 
of  members  at,  109;  Yellow  Pine 
Association,  122;  American  Hard- 
wood Manufacturers'  Association, 
127 

Members,  duties  of,  58;  privileges  of, 
58;  negligence  of,  104;  interests  of, 
109;  prices  of,  175 

Membership,  territory  covered,  55; 
regular  and  associate,  56 

Michigan  Hardwood  Manufacturers' 
Association,  112,  162 

Montague,  Gilbert  H.,  on  legality  of 
open  price  plan,  156-157 

Murphy,  J.  A.,  on  effect  of  standardi- 
zation on  prices,  187 

National  Association  of  Finishers  of 
Cotton  Fabrics,  16,  70 


INDEX 


National  Association  of  Hosiery  & 
Underwear  Manufacturers,  17,  108 

National  Association  of  Purchasing 
Agents,  attitude  of,  107 

National  Association  of  Woolen  Manu- 
facturers, 17 

National  Bottle  Manufacturers'  Asso- 
ciation, 109;  reporting,  71 

National  Box  &  Shook  Manufacturers' 
Association,  79,  86 

National  Coal  Association,  55 

National  Cotton  Manufacturers'  Asso- 
ciation, 16 

National  Hardwood  Lumber  Associa- 
tion, 15 

National  Lumber  Manufacturers'  Asso- 
ciation, 15, 116-117 

New  York  Joint  Legislative  Committee 
on  Housing,  testimony  on  nature  of 
competition,  154,  169 

News  Print  Service  Bureau,  report  of 
sales,  78 

North  Carolina  Pine  Association,  77, 
81,  82,  85 

Northern  Hemlock  &  Hardwood  Manu- 
facturers' Association,  77,  no 

Ohio  Millers'  State  Association,  19,  56, 

64,74 

Open  price  cooperation,  9 
Optical  Manufacturers'  Association,  85 
Orders,   reports  of,   70;   reporting  of, 

72,  82,  84 

Penalties,  19,  21,  30,  112,  161 
Pressed  Metal  Association,  63,  70 
Prevalence  of  open  price  associations, 

10-19 

Price  lists,  reporting  of,  72,  74,  75,  76; 
abuse  of,   117,   160;  use  by  Yellow 
Pine  Association,  121;  use  by  American 
Hardwood   Manufacturers'  Asso- 
ciation, 130,  133 

Prices  (all  of  chapter  nine),  fixing  of, 
29,  37-38,  105,  122,  164;  reports  of, 
75;  ruling  prices,  79;  effect  of  open 
price  work  on,  100,  187,  194;  in  lum- 
ber industry,  136-137,  140;  main- 
tenance and  enhancement  of,  158; 
abuse  of  price  reporting,  160;  of 
members  and  non-members,  175; 
effect  on  small  producer  of,  180,  192; 
stabilization  of,  183;  uniformity  of, 
184;  false  reports  of,  185,  190;  effect 
of  standardization  on,  187;  effect  of 
failure  to  utilize  reporting  system  on, 
188-189;  effect  of  potential  and  in- 
direct competition  on,  189 
Production,  reporting  of,  72,  80,  84, 


103;  regulation  of,  102;  reporting  by 
American  Hardwood  Manufacturers' 
Association  of,  129 

Promoters  of  open  price  associations, 
28 

Publicity,  relation  to  open  price  move- 
ment, 19,  22,  23,  41;  as  remedy  for 
illegal  activities,  164;  Federal  Trade 
Commission  on,  166;  Forest  Service 
on,  1 66 

Purchases,  reports  of,  72,  74,  86 

Quorum,  64 

Remedies,  Government  supervision, 
164;  plan  of  Samuel  Untermyer,  164; 
publicity,  164-166;  plan  of  E.  H. 
Gaunt,  165;  conclusions  on,  200-205. 

Retailers,  relation  to  open  price  move- 
ment, 1 8,  72,  74 

Returned  goods,  reports  of,  72 

Rohrbach,  C.  H.,  on  effect  of  standard- 
ization on  prices,  187 

Sales,  reports  of,  74,  76,  78-80,  99-100, 
in,  113, 121, 1 29;  size  and  volume  of, 
109 

Sales  Book  Manufacturers,  Associa- 
tion of,  83 

Salt  Producers'  Association,  85,  86 
Secretaries,  as  promoters,  28;  functions 

of,  60-62 

Sellers,  position  as  bargainers,  185-186 
Shipments,  reports  of,  72, 79,  80,  84,  129 
Southern  Pine  Association,  15,  26,  50, 

124 

Standardization,  of  grades  and  sizes, 
19,  72;  of  terms  of  payment,  65;  of 
cost  systems,    80;   of  lumber,    ico; 
effect  on  prices  of,  187 
State  trade  commission,  164 
Statistical  Associations,  32-33 
Steel    Barrel    Manufacturers'    Associa- 
tion, 77 

Steel  Plate  Association,  29 
Steel  Shafting  Association,  29 
Stock,  reporting  of,  72,  74,  80,  82,  84, 

100-102,  130 

Structural  Steel  Association,  29 
Structural  Steel  Association,  29 
Styles,  effect  on  open  price  work,  108 
Supply  and  demand,  law  of,  196 
Swan,  O.  T.,  on  influence  of  association 
activity  on  prices,  191 

Terms  of  payment,  163 

Textile   industry,   associations   in,    15; 

standardization  in,  73;  opposition  of 

buyers  in,  106 


240 


INDEX 


[404 


Treasurer,  functions  of,  59 

U.  S.  Potash  Producers'  Association,  78 
U.  S.  Steel  Corporation,  18,  25,  35 
Untermyer,  Samuel,  on  legality  of  open 
price  plan,  154-156;  on  remedies  for 
controlling  association  activities,  164; 
on  competition,  169-170 

Voluntary  associations,  50,  108 

Webb-Pomerene  Act,  170-171 
West    Coast    Lumber    Manufacturers' 
Association,  20,  77,  no 


Western  Pine  Manufacturers'  Associa- 
tion, 27 

Wholesalers,  relation  to  open  price 
work,  1 8 

Wilson,  Woodrow,  on  trade  association 
activity,  170 

Woolen  and  worsted  industry,  17 

Woolen  Goods  Exchange,  17, 73 

Yellow  Pine  Association,  26,  119-124, 

158 
Yellow  Pine  Wholesalers'  Association, 

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